What Is VantageScore and How Is It Calculated?

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  • VantageScore is a credit scoring model developed by the three major credit bureaus: Experian, Equifax and TransUnion.
  • VantageScore 4.0 takes into account monthly credit balances for the past 24 months.
  • FHFA approved VantageScore 4.0 and FICO 10T for use by Fannie Mae and Freddie Mac in October 2022.

When someone talks about their credit score, they’re usually referring to their FICO score, the oldest and most widely used scoring model. However, VantageScore has been beating FICO year after year.

The second-ranked credit scoring model, VantageScore had a user base of 2,500 lenders from July 2018 to June 2019 generating 12.3 billion VantageScore credit scores. From March 2021 to February 2022, VantageScore had a user base of over 3,000 lenders 14. .

The majority of lenders still rely on FICO scores when making lending decisions, but VantageScore is becoming increasingly important. Here’s everything you need to know about VantageScore and how it works.

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What is VantageScore?

VantageScore is a credit scoring model that was designed by the three major credit reporting agencies: Equifax, TransUnion, and Experian.

Like other credit scoring models, VantageScore is designed to measure a consumer’s creditworthiness. The higher your credit score, the better your chances of paying off your debts. This means less risk for lenders, which in turn lowers your interest rates.

Comparisons are often made between GPA and credit scores. The first version of VantageScore, released in 2006, actually assigned consumers a letter grade from A to F, corresponding to a credit score of 501-900. This was the first of four generations of VantageScore to come out.

VantageScore 2.0 came out four years later in the wake of the late 2000s and the bursting of the housing bubble after the recession. The financial upheaval allowed VantageScore to update how it views financial profiles. It came with the same grading system as VantageScore 1.0.

If a lender is using VantageScore now, it’s probably using VantageScore 3.0, which was released in 2014. This iteration departed from previous generations by ditching the letter grade system in favor of a five-level system similar to FICO. It also adjusted the 300-850 score range, just like FICO.

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The districts are divided as follows:

The credit bureaus released VantageScore 4.0 in 2017, although the credit world has yet to fully embrace this generation. More on VantageScore 4.0 later.

VantageScore vs. FICO

Because VantageScore was created as a competitor to FICO, they work similarly. Both scoring models operate on a 300-850 scale, although as mentioned earlier, this was not always the case.

“Think Pepsi and Coke,” says John Ulzheimer, credit expert and former employee of FICO and Equifax. “It’s that simple.”

However, your VantageScore will differ from your FICO score. This is because VantageScore weighs your credit score information differently. Here’s the full breakdown:

While FICO and VantageScore weigh payment history equally, it’s worth noting that FICO weighs new credit — which takes into account recent hard inquiries — twice as heavily as VantageScore.

Calculations aside, it’s worth noting that FICO is still by far the dominant credit scoring model. FICO says that 90% of lenders use FICO scores to decide whether to lend money to a borrower. Ulzheimer says that just because FICO leads VantageScore usage doesn’t mean VantageScore is irrelevant.

“Being number two in credit scoring, the space is still a very good place to be, given the sheer volume of credit scores used each year,” says Ulzheimer.

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VantageScore 4.0

VantageScore 4.0 is the latest generation of the credit scoring model. Unlike the previous model, 4.0 takes “trend data” into account. Trending credit data analyzes your revolving credit (credit card balances) balances over the past 24 months to predict future performance. “That data is incredibly predictive of risk,” says Ulzheimer.

With an additional metric to track, VantageScore 4.0’s new calculation distribution changes a bit. Here’s the full spread:

In October 2022, the Federal Housing Finance Administration (FHFA) approved VantageScore 4.0 and FICO 10T for use by Freddie Mac and Fannie Mae. This means that when these credit scoring models are implemented in a few years, lenders will be required to provide companies with FICO 10T and VantageScore 4.0.

How to check your VantageScore

Most financial institutions, such as credit card companies or banks, will provide you with your FICO score. However, because VantageScore is not that popular or widely used, your score may not be immediately available.

However, there are still many ways to access your VantageScore for free, ie
VantageScore website listings. For example, Credit Karma offers VantageScore 3.0 from TransUnion and Equifax. Several places like American Express, CreditWise, and Credit Sesame also offer VantageScores.

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