The VantageScore was developed by the three credit reporting companies, Experian, Equifax, and TransUnion to compete with the FICO credit score. The credit reporting companies collect data on consumer’s credit history and that data are then used to calculate a credit score utilizing a credit scoring model. The most commonly used credit scoring model was developed by the Fair Isaac Corporation in is referred to the FICO score. FICO has about 90% of the market.
When a lender is evaluating the risk in loaning to a particular consumer they first decide which credit reporting company to get a credit history from. The lender must then decide which scoring model to run that data through to end up with a credit score. In a previous blog we discussed the components of the FICO score. Here we will similarly deconstruct the VantageScore.
When it was first developed, the VantageScore used a scale from 501-990. However, version 3.0 of the VantageScore model changed the scale to 300-850 to match FICO’s scoring range. VantageScore does not publish how it weights the different factors that go into credit the score, but they do disclose the relative importance for factors.
Here are the factors from most to least importance.
- Payment History
- Age of Credit and Type of Credit
- % of Credit Used
- Total debt
- Recent Credit
- Available Credit
This is the most important factor in determining your VantageScore. Whether you are paying your loans and credit card bills on time is great predictor of future behavior.
Age of Credit and Type of Credit
Having a long credit history is highly influential on your VantageScore as is the mix of accounts that you have. It is better to be using a few types of credit such as an auto loan, credit cards, mortgage, and finance company loans than to rely solely on credit cards. Similarly, if you only have an auto loan and use cash for everything else, you won’t have built much of a credit history.
% of Credit Used
Being closed to your borrowing limit has a negative impact on your score. The recommendation is to keep your balance to just a third of your credit limit. This is considered another highly influential factor.
The factor is only moderately influential because a credit history does not include income information so your total debt cannot be compared to assets or income.
This refers to whether you have recently opened credit accounts or have had lenders request your credit history. Closing accounts is also taken into account. Although this is only a fifth on the list of factors, avoid applying for a number or new loans or credit cards in a short period of time, say three months.
Finally, the amount of credit that you have available does have an impact on your VantageScore but not a large one.
Score Changes over time
The old adage that time heals all wounds applies to negative events on your credit report. The older a missed payment or loan default is, the less it will impact your score. Filing for bankruptcy will have a large negative impact on your VantageScore for 7-10 years. Defaulting on a loan or making late payments will be considered a black mark for roughly 1 ½ years. Less important activity such as opening or closing an account only influences the score for a brief few months.
Factors Not Included in the VantageScore Calculation
The VantageScore model does not use information on race, gender, age, marital status, place of residence, occupation, or salary.
Getting a VantageScore
Although the three credit reporting companies are each required by law to provide consumers one free report per year, current law does not make the same provision for credit scores. You can get your score for a fee from either Experian or TransUnion.