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Like other credit scoring systems, a VantageScore numerically communicates your “creditworthiness” to lenders. Differing from the more widely-known FICO score, VantageScores are calculated by a unique scoring model that takes numerous credit-related factors into consideration. As a result of their proprietary score-determining algorithms, your VantageScore and your FICO score may differ. Keeping track of both scores can help you better understand how your supposed creditworthiness fluctuates across various metrics. This is especially essential for business owners, whose business credit scores are evaluated when they apply for a business loan or merchant account.
What Is a VantageScore?
Introduced in 2007 by Equifax, Experian, and TransUnion, VantageScore is yet another credit scoring system. Below are some attributes of VantageScore that differentiate it from other credit scoring systems:
- It requires only one month of credit history to establish your score.
- It evaluates additional factors in its scoring model, such as utility payments and rental history.
- It predicts future behavior and weighs those predictions in your overall score.
Now that you have a general understanding of VantageScore, below reviews the evolution of this credit scoring system throughout its different iterations.
Released in 2017, VantageScore 4.0 is the latest version of this credit scoring model. The most notable distinction of this version when compared to the last is the inclusion of new data sources, such as utility and telecom payments. Such data purportedly improves the score’s overall predictive power. Additionally, the algorithms used to calculate the score have been tweaked to better reflect consumers’ current credit habits. As a result, VantageScore 4.0 is a more accurate credit indicator than ever before.
Since its inception, VantageScore has undergone several revisions, one of which was VantageScore 3.0. Introduced in 2014, this version made significant changes to the previous calculation system.VantageScore. “VantageScore 3.0“. Accessed September 14, 2022. The most noteworthy change was its pivot from a letters-and-numbers-based scoring system to only a numbers-based scoring system, as well as its creation of a cumulative score that weighs factors over time instead of a snapshot of a singular moment.
VantageScore 3.0 also changed the way certain types of inquiries are weighed. For example, rate-shopping inquiries were modified to count as a single inquiry, regardless of how many times a borrower applies for credit within 14 days.
VantageScore 2.0 was released after the economic recession in 2008, with the goal of taking more real-world data into account. Its proprietary combination of a letter-and-numbers-based scoring system implemented scoring tiers ranging between 501 and 990 and grade levels A to F.Experian. “VantageScore® 2.0“. Accessed September 14, 2022.
Who Uses VantageScore?
Any financial institution considering lending funds to an individual can examine their VantageScore. In doing so, lenders can measure a consumer’s credit history and assess the likelihood of a return on their investment. However, lenders more often rely on FICO scores when evaluating requests for credit or funding.FICO Score. “About“. Accessed September 14, 2022.
What Is the VantageScore Range?
The original VantageScore had a range of 501-990, which corresponded with a letter grade. With the introduction of VantageScore 3.0, the range was updated to 300-850 to match FICO’s score range. As of publication, the VantageScore range remains at 300-850.
The higher a VantageScore, the more worthy of credit lenders consider the score recipient. Below breaks down the score range:
- 781-850 – Excellent
- 661-780 – Good
- 601-660 – Fair
- 500-600 – Poor
- 300-499 – Very poor
What is a good VantageScore?
According to Experian, a “good” VantageScore is considered anywhere from 661 and 780.Experian. “What Is a Good Credit Score?“. Accessed September 14, 2022. When applying for a business loan, you should verify your score is at least in the good range, as it communicates your trustworthiness to the lender.
If you fall within the fair range, lenders may require you to pay higher interest rates on borrowed money. Finally, if you fall in the poor or very poor range, lenders may request collateral or issue otherwise less favorable loan terms. That said, it’s best to continuously monitor your score to ensure that it’s solid.
6 Factors that Influence Your VantageScore
While VantageScore’s calculation algorithm isn’t public knowledge, there are six known factors significantly influencing scores. Below lists these factors and their weight on your VantageScore.
1. Payment history
One of the most influential factors on your VantageScore, your payment history indicates whether or not you consistently pay bills on time. Missed payments and delinquent accounts are a major red flag to lenders, and they can significantly lower your VantageScore.
2. Credit utilization
Accounting for another measurable chunk of your VantageScore, your revolving credit utilization highlights the percentage of credit you’re using. If you have a $2,000 credit limit and you’ve used $1,000, your credit utilization is 50%. Lenders typically consider “good” credit utilization to be 30% or less.
3. Bank balances and credit mix
Your bank balance and credit mix are “highly influential” on your VantageScore. The phrase “credit mix” refers to credit cards, loan balances, and other financing accounts. Lenders prefer a diverse mix of accounts with low balances.
4. Available credit
Within your VantageScore, your available credit is weighed with your payment history. Using the above example of $1,000 of a $2,000 credit limit being used, your available credit is the remaining $1,000.
5. Recent credit inquiries and new accounts
A slightly less determining factor, VantageScore weighs recent credit inquiries lower than FICO does. Credit inquiries occur when you apply for credit cards, request a credit limit increase, or otherwise attempt to secure additional credit. Lenders evaluate this factor to interpret your financial responsibility and evaluate your current financial health.
6. Age of accounts
While the age of your accounts is heavily weighed on your FICO score, it’s weighed less so when determining your VantageScore. Measured by your long-standing accounts, this factor pertains to how long you’ve had a credit history. Lenders prefer long-term accounts with low balances.
VantageScore vs FICO: What’s the Difference?
Depending on their preferences, lenders may assess your creditworthiness via your VantageScore, FICO score, or both scores. Because either score may dictate your ability to secure financing, understanding how they differ is important. Below lists their main differences.
- Launched in 2006 by the major credit bureaus, VantageScore is the newer system of the two. FICO scores have been around since 1989 and remain the most widely used credit scores. Both FICO and VantageScore base their ratings on information collected by the three major credit bureaus.
- In terms of score calculation, VantageScore weighs factors with a bit more fluidity, attempting to paint a picture of your financial life over time. Meanwhile, FICO scores more so look at a snapshot in time.
- Both now issue scores within the same range—300 to 850—but tether different scores to their tiered assessments. For example, the FICO range for a “good” score is between 670 to 739; VantageScore is between 661 to 780.
If you’re trying to determine which score to focus on, it depends on your lender, your financial situation, and what’s most important to you. And of course, if you can, it’s best to monitor both scores.
How to Get a VantageScore
You probably already have a VantageScore. Anyone with a credit history has a VantageScore, just like anyone with a credit history has a FICO score. In the next section, we explain how to obtain your VantageScore for free.
How to Find Your VantageScore
Acquiring your VantageScore is easy! On the VantageScore website, you can access a list of partners through which you can obtain your VantageScore for free.
How to Improve a VantageScore
If you’re trying to improve your VantageScore, here are a few things you can do:
- Make sure you have a mix of financing including credit cards, loans, and other forms of financing.
- Keep your credit utilization below 30% by using less than 30% of your available credit at any given time.
- Make payments on time. If you have a history of late payments or account defaults, try to get them resolved and removed from your report.
- Monitor your credit report for any errors and dispute them as soon as possible.
VantageScore: Final Thoughts
Monitoring your VantageScore regularly can be extremely beneficial, especially if you’re a new business owner applying for funding or a merchant account. Newer business ventures may not yet have a business credit score. As such, financial institutions consider the business owner’s personal credit score when evaluating applications—that is, until the operation has established its own business credit score.
While business isn’t personal per se, your personal credit score can impact your business’s financing options. Monitoring your credit scores, VantageScore included, helps set up your budding business for success.
Why is my VantageScore lower than FICO?
There are a few reasons your VantageScore may be lower than your FICO score. First, the two scoring models utilize different sets of information to calculate your score. Second, they weigh each factor differently. (Something greatly influencing your FICO score may have had a lesser impact on your VantageScore.) Additionally, the VantageScore model updates more frequently than the FICO Score model, so your score may change more often as a result.
How often should I check my VantageScore?
It’s recommended you check your VantageScore at least once a year to keep track of your finances and ensure it’s accurate (i.e., no signs of false reporting or identity theft). However, if you are trying to improve your VantageScore, you should check your score once a month.
Is a VantageScore accurate?
Yes, a VantageScore is accurate, though it may not always be immediately updated. If you see anything that looks false on your report, report it as soon as possible.
Why would I have more than one VantageScore?
You shouldn’t have more than one VantageScore, but you may have multiple credit scores. There are three major credit bureaus: Experian, Equifax, and TransUnion. Each has a credit score for you. Additionally, FICO and VantageScore take information recorded by the three bureaus to calculate their score. In total, you may have up to five credit scores.