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- VantageScore is a credit scoring model developed by three major credit bureaus: Experian, Equifax and TransUnion.
- VantageScore 4.0 takes into account your monthly revolving credit balances for the past 24 months.
- FHFA approved VantageScore 4.0 and FICO 10T for use by Fannie Mae and Freddie Mac in October 2022.
When someone talks about their credit score, they’re usually referring to their FICO score, which is the oldest and most widely used scoring model. However, VantageScore is gaining on FICO, year after year.
The second-ranked credit scoring model, VantageScore, pulled 12.3 billion VantageScore credit scores from 2,500 lenders from July 2018 to June 2019. From March 2021 to February 2022, VantageScore has a user base of over 1 billion Lender Score 1 billion 3,00 lenders. .
Most lenders rely on FICO scores when making lending decisions, but VantageScore is more relevant. Here’s everything you need to know about VantageScore and how it works.
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What is VantageScore?
VantageScore is a credit scoring model designed by three major credit reporting agencies: Equifax, TransUnion and Experian.
Like other credit scoring models, VantageScore is designed to measure a consumer’s creditworthiness. The higher your credit score, the more likely you are to pay off your outstanding debts. This means less risk for the lender, which leads to lower interest rates for you.
Comparisons are often drawn between GPAs and credit scores. The first version of VantageScore, released in 2006, actually assigned consumers a letter grade corresponding to a credit score of 501-900 from A through F. This is the first of four generations of VantageScore.
VantageScore 2.0 came out four years later as a result of the late 2000s and post-recession bubble burst. Fluctuating finances gave VantageScore the opportunity to update what financial profiles looked like. It comes with the same grading system as VantageScore 1.0.
If a lender is using VantageScore now, it is using VantageScore 3.0, which was released in 2014. This iteration included a departure from previous generations, which replaced the letter-grade system in favor of a five-grade system like FICO. It sets its score range to 300-850, just like FICO.
The grades are broken down as follows:
The credit bureaus released VantageScore 4.0 in 2017, although the credit world has yet to widely adopt this generation. More on VantageScore 4.0 later.
VantageScore vs FICO
Because VantageScore was created as a competitor to FICO, they work similarly. Both scoring models work on the 300-850 scale, although as we discussed earlier, this is not always the case.
“Think Pepsi and Coke,” says credit expert and former FICO and Equifax employee John Ulzheimer. “It’s that simple.”
However, your VantageScore is different from your FICO score. That’s because VantageScore weighs your credit score information differently. Here’s the full breakdown:
While FICO and VantageScore weigh payment history equally, FICO weighs new credit — which considers recent hard inquiries — twice as much as VantageScore.
Calculations aside, it’s worth mentioning that FICO is still the dominant credit scoring model. FICO states that 90% of lenders use FICO scores when deciding whether to lend money to a borrower. Just because FICO leads VantageScore in usage doesn’t mean VantageScore is irrelevant, says Ulzheimer.
“Being second in credit score, space is an even better place to be given the massive amount of credit scores used each year,” Ulzheimer says.
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VantageScore 4.0 is the latest generation of the credit scoring model. Unlike previous models, the 4.0 takes “trend data” into account. Trended Credit Data looks at balances on your revolving lines of credit (credit card balances) over the past 24 months to predict future performance. “That data overestimates risk,” Ulzheimer says.
With an additional metric to track, VantageScore 4.0’s new calculated distribution changes slightly. Here’s the full spread:
In October 2022, the Federal Housing Finance Administration (FHFA) approved VantageScore 4.0 and FICO 10T for use by Freddie Mac and Fannie Mae. This means that when these credit scoring models are implemented in a few years, lenders will be required to provide enterprises with a FICO 10T and VantageScore 4.0.
How to check your VantageScore
Most financial institutions, such as credit card companies or banks, will provide you with your FICO score. However, because VantageScore is not very popular or widely used, your score is not immediately accessible to you.
However, there are still plenty of ways to access your VantageScore for free
VantageScore website lists. For example, Credit Karma gives you a VantageScore of 3.0 from TransUnion and Equifax. Several places like American Express, CreditWise and Credit Sesame also offer VantageScores.