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Most people associate credit scores with FICO, and with good reason. And while there are many credit scoring models out there, the other main scoring model is VantageScore®.
The Fair Isaac Corporation ( once Fair, Isaac and Company ) introduced the first general-purpose credit score in 1989, and FICO® credit scores have been used in a wide range of lending decisions always since. But FICO® scores aren ’ t the lone credit scores you ’ ll see. The early main scoring exemplar is VantageScore®, the third version of which — VantageScore 3.0 — is wide used today .
What is VantageScore 3.0?
As we mentioned, VantageScore 3.0 is the third gear version of the alternative credit score model to FICO. But to amply understand how the scoring model works, let ’ s take a flying footfall back .
It all started in 2006, when the three major consumer accredit report chest of drawers — Experian, TransUnion and Equifax — teamed up to create the first iteration of the VantageScore® credit scoring model .
VantageScore went through several versions before VantageScore 3.0 debuted in 2013. The modern mannequin became thus successful that approximately 40 million Americans who had previously been without a recognition score are now able to get one, according to VantageScore .
The fourthly and latest adaptation of the VantageScore® model, VantageScore 4.0, debuted in 2017, but many lenders continue to rely on VantageScore 3.0 .
With that in mind, let ’ s review some of the basic information you should know about how VantageScore 3.0 works and how it differs from early credit scoring models .
At a glance: VantageScore 3.0 vs. other scoring models
|Credit factor||VantageScore 3.0||VantageScore 4.0||FICO® Score 8||FICO ® Score 9|
|Utilization rate||Very important||Very important||Very important||Very important|
|Historical utilization rate and payment info (trended data)||No impact||May affect your score||No impact||No impact|
|Collection accounts||Ignores paid collection accounts||Ignores paid collection accounts
Ignores checkup collection accounts that are less than six months old
Weighs unpaid checkup collection accounts less than early types of collection accounts
|Ignores small-dollar “nuisance” accounts that had an original balance of less than $100
Treats aesculapian collection accounts, including those with a zero balance, like early collection accounts
|Ignores paid collection accounts
Weighs unpaid medical collections less than early types of collection accounts
|A tax lien or judgment||Can have a significant impact||Are less important than before, but can still have a significant impact||Can have a significant impact||Can have a significant impact|
How is your VantageScore 3.0 calculated?
VantageScore 3.0 credit scores range from 300 to 850. Earlier iterations of the VantageScore® model featured a different range, but VantageScore 3.0 adopted the 300 to 850 range — the lapp range as most FICO® scores — to make it easier for lenders to use .
Though individual credit scores are based on a building complex series of calculations, VantageScore does offer some insight into how the assorted credit factors are used to calculate a VantageScore 3.0 score .
generally, here ’ s how the categories can break down .
persona : ccupdateutilization-vantage-2
Payment history (about 40%)
The biggest divisor in your VantageScore 3.0 credit scores is requital history. In early words, are you systematically paying your bills on meter, or are you frequently delinquent on your accounts ?
payment history is typically represented as a percentage showing how frequently you ’ ve made on-time payments. Given the burden of this component, belated or missed payments have the potential to significantly harm your credit scores .
Age and type of credit (about 21%)
VantageScore 3.0 besides factors in how long you ’ ve had different types of credit accounts open. ( Don ’ triiodothyronine concern — it doesn ’ triiodothyronine refer to your actual age. )
ideally, lenders like to see long-run, established lines of credit. Having a diverseness of report types is a bonus — vitamin a long as you stay up-to-date on your payments — as lenders besides typically like to see that you ’ ve used a mix of accounts on your credit responsibly .
Credit utilization (about 20%)
credit scores are intended to help lenders get a clean photograph of the type of borrower you might be. That ’ second why they want to see you using a little share of your available credit rating at any given prison term. Experts broadly recommend a credit utilization ratio of below 30 % .
Balances (about 11%)
This gene refers to the total sum of recently reported balances ( current and derelict ) on your credit accounts .
Lenders broadly like to see low balances on your other accredit accounts, as it suggests the chances of you making on-time payments each calendar month is higher. Though the best method is to pay off your balances monthly .
Recent credit (about 5%)
Have you applied for a new credit calling card recently ? possibly taken out a personal loanword ? Lenders may want to know these types of things, as your late recognition activeness, including recently opened accredit accounts and recognition inquiries, can be an indicator of future fiscal performance .
Available credit (about 3%)
Although not a huge component, lenders typically like to see that you ’ re only taking out the credit that you need .
How does VantageScore 3.0 compare to FICO® models?
There are many similarities between the VantageScore® and FICO® credit-scoring models. not entirely are both typically calculated on a 300-to-850-point scale ( newer FICO® scores may range up to 950 ), but both models put a lot of emphasis on payment history and credit use .
For the sake of comparison, let ’ s take a spirit at how FICO weighs respective factors in your credit scores. Some of these factors may have slightly different names from what we referenced above, but they refer to similar information in your recognition reports .
image : ccupdateutilization-fico-3
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Other factors, such as types of credit used: 10%
While much of the information is comparable, one bad dispute may lie in how VantageScore and FICO evaluate data in ordain to generate scores, particularly for people without a lot citation history .
If you have little credit history, there ’ s a adept prospect you might not have a FICO® score. FICO requires at least six months of report data reported to a credit agency within the past six months before a score can be established .
VantageScore, on the other hand, might be able to provide more people with a credit score by using just one calendar month of history on at least one account reported within the former 24 months .
Do you have a collection explanation on your credit reports ? VantageScore may be a short more forgiving to your situation. Unlike the FICO® 8 credit scoring model, VantageScore 3.0 will ignore any collections account that has been paid in full moon. ( FICO® 9 besides ignores any collection account that is paid in entire. )
What is the difference between VantageScore 3.0 and VantageScore 4.0?
Over time, VantageScore Solutions has adjusted its credit scoring model to better chew over consumers ’ overall credit profile .
In 2017, VantageScore announced a modern adaptation of its credit rating scoring mannequin : VantageScore 4.0. This new model introduces several changes that could affect your credit scores .
here ’ s a drumhead of some of the important changes VantageScore 4.0 brings to the mesa .
Trended credit data
typically, credit rating scores have entirely been able to take a snapshot of your credit reports based on how they look at a specific period of clock time. VantageScore Solutions claims that VantageScore 4.0 is the first and only recognition scoring model to use swerve data from the three major consumer credit report agency — meaning it could offer deeper, more-accurate insight into your borrowing and payment patterns .
Jeff Richardson, frailty president of market and communications with VantageScore® Solutions, offers an model : A consumer might accumulate debt around the holidays and then purchase a fresh car in January. In the abruptly term, that consumer might look like a bad borrower. however, going back over a longer historical period, as VantageScore 4.0 purports to do, might tell a different narrative. The end leave could be a well-defined painting of the borrower .
Tax liens, judgments and medical collection accounts might not hurt as much
In July 2017, TransUnion, Experian and Equifax adopted stricter requirements for collecting and reporting consumers ’ tax liens and civil judgments. In light of that change, VantageScore 4.0 doesn ’ t trust as heavily on tax liens and civil judgments as some former seduce models .
Credit scores for more consumers
VantageScore 4.0 could be welcomed by consumers with a thinly or dormant credit history. VantageScore Solutions says the model leverages “ machine learning techniques ” to better develop scorecards for consumers with no update to their recognition files in the previous six months .
The tauten believes this will bolster VantageScore ’ s ability to accurately score 30–35 million consumers neglected by traditional score models .
When it debuted in 2013, VantageScore 3.0 added a raw dimension to the credit scoring exemplar. Its successor, VantageScore 4.0, similarly aims to provide lenders a better picture of consumers ’ credit.
Read more: Average Credit Card Debt in America: 2021
Richardson explains that with each development of its scoring model, VantageScore Solutions aims to bring three key items to the market : greater accuracy, greater reach and more consistency .
credit rating scores are an ever-evolving concept, but knowing how different models incorporate credit factors can help you address any issues that may arise .
About the author: Sean Bryant is a Denver-based freelance writer specializing in personal finance, credit cards and travel. With nearly 10 years of writing experience, his work has appeared in many of the industry’s top publications. S… Sean Bryant is a Denver-based freelance writer specializing in personal finance, credit cards and change of location. With about 10 years of writing experience, his work has appeared in many of the diligence ’ s top publications. S… Read more.