Consumers understand that the difference between being approved or denied for credit is often based on the magic three numbers that make up their credit score. What some consumers may not know is the fact that there is more than one credit score available for lenders to review.
Most people are familiar with the FICO credit score which was first introduced in the mid 80’s by a company that was known at the time as Fair Isaac. The FICO credit scoring system was designed to make it easier for lenders to assess the risk of individuals applying for credit. The FICO credit score is calculated using a credit-scoring formula that includes payment history, level of debt, age of credit history, types of credit and credit inquiries. While many lenders check the FICO score, they also have the option to check another credit score, one that may not be as familiar to consumers.
What is the VantageScore Credit Score?
The VantageScore Credit Score was launched by the three major credit reporting bureaus in 2006 and while it is not as widely recognized by consumers, it is a score that should not be ignored. The VantageScore model was designed to offer a more consistent score than those presented by each individual credit bureau. In doing so, lenders can often get a much clearer picture as to how applicants have managed credit in the past and what level of risk they pose in the future.
As you can see from this chart, the VantageScore is made up of:
- 32%: Payment History. Repayment behavior (satisfactory, delinquency, derogatory)
- 23%: Utilization. Percentage of credit amount used/owed on accounts
- 15% Balances. Amount of recently reported balances (current and delinquent)
- 13%: Depth of Credit. Length of credit history and types of credit
- 10%: Recent Credit. Number of recently opened credit accounts and credit inquiries
- 7%: Available Credit. Amount of credit available
VantageScore Credit Score Scale and Other differences
The VantageScore credit score is calculated in a similar fashion to that of the FICO credit score, however there are a few distinct differences. Where the FICO score is determined using five categories, the VantageScore credit score uses six. They include; payment history, utilization, balances, depth of credit, recent credit and available credit.
Another difference between the two is the weighting given to each category. Payment history and new credit inquiries have roughly the same amount of influence when calculating each score. There is a big difference however in how each formula treats types of credit, credit history and credit utilization. The VantageScore formula places more weight on your credit utilization- 15 percent more than FICO. Conversely, credit history and types of credit carry less weight in the VantageScore formula (13%) versus that of FICO (25%).
In addition to the differences in calculating your credit score, VantageScore credit score and FICO credit score have a different grading system. The FICO credit score range is between 350 and 850, while the VantageScore credit score ranges from 501-990 with letter grades assigned based on where your number falls within the range. For example a score between 901 and 990 would be an A, while 501-600 gets a F. When looking at either score, lenders consider the higher the number, the lower the risk.
It is important for consumers to be familiar with both credit scores to understand where they stand with lenders. As to which score is better, that depends on which side of the application you are sitting and your credit itself. The VantageScore credit score is believed to be very efficient at predicting risk, therefore lenders might benefit more by using this score. In any event, consumers should take their credit score seriously and take every available action to improve their credit- regardless of which score is viewed.
Get your VantageScore for Free
Anyone can get his or her credit report free from each of the credit bureaus once per year by visiting AnnualCreditReport.com, but the credit bureaus are not required to give a free copy of the credit score. There are many companies which offer a free credit score, though some of these offers require signing up for a free trial to a credit monitoring service. If you want to know your credit score, but don’t want to give a company your credit card or sign up for a free trial that turns into a paid service, then I recommend getting your free credit score without a credit card by signing up for one of the following companies which require you to sign up for an account, but don’t charge you anything to use their service: