While FICO leads the pack in the credit scoring business, VantageScore entered the game in 2006 to challenge FICO’s dominance.
Developed by all three credit reporting agencies (CRCs) – Experian, TransUnion, and Equifax – VantageScore is gaining traction. Here’s how it works, and how you can get the best VantageScore credit score possible.
What is the VantageScore credit score?
The motive behind creating this new score was to create a simpler, more consistent, and more predictive credit score, according to VantageScore.
Although the big three credit bureaus developed VantageScore, it was transferred to independent management by VantageScore Solutions.
If you’re curious to see your VantageScore credit score, here’s a list of providers from which you can obtain it for free.
3 main benefits of the new credit score
1. Helps the credit invisible
Before the creation of VantageScore, achieving high credit scores was difficult for those considered to be “credit invisible.” Essentially if you hadn’t yet built credit, then there was nothing to score you on.
But the development of the VantageScore consisted of a strategy to include those who haven’t yet used much credit, or only use it lightly. This was done by increasing the years of credit history reviewed and adding more granular data from credit reports.
According to VantageScore, this has opened up credit scoring to an additional 30-35 million consumers.
U.S. News explains why this strategy works:
A move to VantageScore could be good news for consumers, particularly those with a weak credit history. VantageScore 3.0 is the most current version and looks back 24 months at a person’s credit history, a feature that allows it to score more people who have little or no recent credit history.
2. Emphasis on simplicity
Besides opening the gates of credit to more consumers, VantageScore also created a simplicity that didn’t yet exist in credit scoring.
With FICO credit scores, each of the three credit reporting agencies developed its own specific model. That, plus the addition of updated versions and industry-specific scores, led to the creation of multiple credit scores for each consumer.
Since VantageScore’s creation was a collaborative effort by all three credit reporting agencies, the same model is used by all three.
3. Fewer reason codes to decipher
Finally, VantageScore sought to make it easier for consumers to understand their credit scores. It uses fewer reason codes and simplifies the descriptions of these codes.
VantageScore also developed ReasonCode.org, a site where consumers can see a description of the reason codes behind their scores.
Who uses VantageScore?
As interesting as new credit scores may be, they don’t mean much unless lenders use them. That’s why it’s important to understand who uses VantageScore – and who doesn’t.
For now, FICO is still leading the pack when it comes to lender use. It’s the score your prospective creditors see when they review your credit application.
But VantageScore is the leader when it comes to a more predictive score. And that’s important to you if you have a very limited credit history. Creditors who use the score may be more likely to give you a chance.
VantageScore trailing behind FICO – for now
FICO still has the biggest hold on the market with 90 percent of “top lenders” using it. That’s why it’s important to stay on top of your FICO score.
That said, VantageScore has seen tremendous growth over the past few years.
According to VantageScore, more than eight billion of its scores were used between 2015 and 2016. Additionally, “2,400 lenders and other industry participants – including 20 of the top 25 financial institutions – used VantageScore credit scores from July 2015-2016.”
VantageScore might not have 90 percent of the market yet, but it’s growing quickly. And it’s next version is set to be even more competitive.
VantageScore version 4.0 on the horizon
To take the lead, VantageScore’s next version will consider the National Consumer Assistance Plan (NCAP).
Here’s an explanation of the plan:
NCAP provisions include the removal from consumer credit files of significant numbers of negative entries, including tax liens, certain other public records, and some collections accounts.
In short, negative entries that would typically damage your credit score for years might finally be going away. And VantageScore 4.0 will take that into consideration.
The new model, coming out late 2017, will also work to be even more predictive than today’s version by using what’s called trended credit data. According to VantageScore, this reflects changes in credit behaviors over time. It’s in contrast to the static, individual credit history records usually available in consumer credit files.
The VantageScore 4.0 model will use trended credit data to gain better insight into borrowing and payment patterns. This will be particularly beneficial to consumers in the prime and super prime credit score ranges.
From the looks of it, this new model will continue the VantageScore tradition of going outside of the box on credit scores. And this could help consumers gain more access to credit or better rates on credit.
VantageScore vs. FICO: Which one is better?
In the race to be the most popular credit score on the block, you might not be sure which credit score is better. Like the answer to most financial questions, “it depends.”
First, it’s important to understand what better means. Even if VantageScore did create the most intuitive, accurate, and simple credit score out there, it wouldn’t matter to you unless the lender you want to borrow from adopts it.
But if the work VantageScore is doing gets more lenders on board, that will be the game changer. Until then, the best thing you can do is know how you score with both credit scoring models.
As for how VantageScore vs. FICO represents your credit score, the credit score ranges aren’t very different from each other:
Now let’s dive into how these credit scores do differ from each other.
What FICO measures and what VantageScore measures
For starters, FICO and VantageScore define measurement differently. FICO breaks down the factors that play into your score by percentage, whereas VantageScore does it by measuring their factors by influence.
Here’s a look at FICO’s factors.
Now take a look at VantageScore’s factors.
VantageScore vs. FICO credit score factors
As you compare, make sure you note one major difference.
While FICO and VantageScore both emphasize payment history as the top influencing factor, FICO puts your credit utilization in the number two spot. VantageScore puts your age and type of credit as the second most influential factor on your credit score.
Although both prefer consumers to have no more than a 30 percent credit utilization ratio, it’s interesting that VantageScore puts age above that. Especially when you consider the fact that VantageScore aims to open up scores to more consumers by going further back into their credit history.
Overall, both of these scores care about the same things. That certainly makes your life a lot easier as you work to get the best credit scores you can.
How to get your best VantageScore credit score
The things you can do to get the best VantageScore credit score aren’t much different from the things you would need to do to get your best FICO score.
What is different is how long negative items can influence your score. Let’s take a look.
How long do negative items affect your VantageScore credit score?
Negative items can stay on your credit report for years, according to this graph from VantageScore.
As long as some of these items can take to fall off your credit report, the actions you take now can help your score improve faster than it looks.
In fact, the first month after any negative item is when your score will take the biggest hit. VantageScore explains why:
The impact these items will have on your credit score may diminish over time. In other words, although a late payment stays in your credit files for seven years, it does not continue to drive down your credit score for the entire period.
This is possible because a negative item is, “weighted less by credit scoring models as it ages.” In fact, it only takes two years for most negative items to have little impact on your credit score.
Take a look at how lenders perceive each negative factor:
VantageScore explains how to start improving your score:
The small drop caused by the activities in the yellow area can be made up very quickly. For example, your score might go down slightly because an inquiry was reported to the CRCs and you opened a new credit account, but if the CRCs are notified that your payments for the new account are on time and your balance is not excessive, your score begins to benefit from the positive information created as a result of the new credit account.”
Many consumers get so caught up on their score that they make financially detrimental decisions to get the best score they can. Don’t get caught up in that.
Follow these steps to get your best VantageScore credit score
There are a few basic practices you can follow to build or maintain a good VantageScore credit score:
- Make all of your payments on time – to all of your bill collectors.
- Keep your debt below 30 percent of the credit available to you.
- Apply for credit only when you need it.
It’s that simple. But if you’re in a position in which you need to see an improvement fast, here are some specifics from VantageScore on what you can do:
The easiest way to quickly improve your credit score by 10 to 20 points may be to reduce credit card balances substantially and to maintain the behavior for a couple of months.
And a few more tips to keep in mind:
- Reduce your credit card balances before your installment loan balances.
- Know that missed payments on large, secured debt such as a home or car are weighted more than missed payments on a credit card.
- Maintain positive credit behaviors (on-time payments, low credit utilization) indefinitely.
And finally, don’t stress over your credit score. Here are some words of caution from VantageScore:
Having good credit is extremely important, but worrying about whether it goes up and down slightly is much less important than paying attention to the information in your credit files, which is the result of how you manage your credit behavior.
In other words, if you manage your credit wisely, then your credit score will ultimately manage itself.
VantageScore is here to stay (for now)
Whether you consider this terrible or wonderful news, all signs point to VantageScore being here to stay. But that doesn’t mean you have to double down on your credit score tracking and improvement efforts.
Positive credit behaviors such as paying on time and keeping low debt amounts on your credit cards will help you achieve a good score. And you can receive the lowest interest rates best credit or loan products in the future.
Remember, the more you know about VantageScore, the better your credit opportunities and rates can be.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|