Understanding VantageScores and How They Impact You
Understanding how VantageScores work is the first step to improving yours.
Have you seen different numbers associated with your credit score, but you’re not sure what they mean? Don’t worry, we’re here to help clear up the confusion.
In the world of finance, your credit score reflects how you’ve managed past debt. These scores provide lenders with a quick way to gauge your creditworthiness (AKA, the likelihood that you will repay your debts).
Of course, we all like to think that we’re more than a number… and we are. But when it comes to credit, lenders and other organizations need a quantitative way to evaluate an applicant, and a credit score fits that bill.
You often hear two names when it comes to credit scores: FICO and VantageScore. Let’s delve into what makes VantageScores unique from FICO scores and some ways you may be able to improve your VantageScore.
VantageScore is a credit scoring model created through a partnership of three credit bureaus and it competes with FICO to help lenders assess creditworthiness.
VantageScores range from 300 to 850. A higher score indicates you have demonstrated responsible financial behavior and may give you access to benefits, such as lower rates.
Understanding the factors that make up your VantageScore could help you take steps to improve your credit score.
What is a VantageScore?
Introduced in 2006, through a collaboration of the three major credit bureaus, Experian, TransUnion, and Equifax, VantageScore emerged as an alternative to the long-established FICO credit score model.
The credit bureaus developed this new scoring system to give those who may not have used credit before, such as college students or immigrants, faster access to a credit score.1
VantageScore only needs a month of data to calculate a score for a consumer. By comparison, FICO typically needs at least six months of data to generate a score.2
VantageScore also aims to make credit scores more consistent. Since these scores pull data from all three credit bureaus, consumers see more consistent scores when going between lenders who use VantageScores.
FICO scores, on the other hand, create bureau-specific scoring models, meaning your score may be slightly different depending on which bureau the model is pulling data from.3
What Is VantageScore 3.0?
Initially, the VantageScore model used a score range of 501 to 990, differing from FICO’s 300 to 850 scale. However, in 2013 as part of the 3.0 update, VantageScore changed its range to match FICO’s in an effort to create consistency and make it easier for both consumers and lenders to understand.
In addition to the change in its range, VantageScore 3.0 adopted a new approach when considering various credit factors, including a more nuanced breakdown of credit scores into tiers, offering a more comprehensive and detailed view of a person’s credit behavior.
This level of detail allowed lenders to make more informed decisions and provided customers with a clearer understanding of the factors influencing their credit standing.
VantageScore vs FICO
While FICO scores have been the go-to for lenders, particularly for mortgages, VantageScore has been making strides since its introduction in 2006. Between 2021 and 2022, VantageScore usage by financial institutions grew by 30%.4
Today, with a growing number of lenders, as well as credit card issuers and credit monitoring services, turning to VantageScore, it’s increasingly important for consumers to be familiar with both their FICO and VantageScore.
There are a few key differences between these scoring models, including how they weigh factors, how they consider hard inquiries, and the amount of history needed to calculate a score.
FICO and VantageScore don’t weigh credit factors identically. For example, VantageScore gives the most weight to payment history, designating it as "extremely influential" and accounting for 40% of the total score, whereas FICO gives a person’s payment history 35%.5
VantageScores are also influenced by factors like total balances and debt and available credit, while FICO doesn’t take these into account.6
Since FICO scores and VantageScores use and weigh factors differently in their scoring models, your final score from each may be different.
Additionally, VantageScore has a simpler system for considering hard credit inquiries than FICO.
FICO treats multiple inquiries for the same type of loan within a 14 to 45 day period as one inquiry.7 On the other hand, VantageScore treats all credit inquiries, regardless of the credit type, within 14 days of one another as a single inquiry.8
For example, if someone had three hard inquiries for a mortgage within a week, both FICO and VantageScore would treat these as one hard inquiry.
However, if someone had two hard inquiries for a mortgage, and a hard inquiry for a personal loan in one week, FICO would count these as two hard inquiries because they are different credit types, whereas VantageScore would count them as one hard inquiry because they all happened within 14 days of one another.
What is a Good VantageScore?
Generally, a VantageScore of 650 or above is considered good, but keep in mind that each lender has their own score requirements depending on the product you’re applying for.
Think of your VantageScore like a test where 850 is the top grade and 300 needs improvement. Score bands typically look like this:9
300-549: Time to boost your score.
550-649: Getting better, but still got some work to do.
650-699: You're fair, but there's room to grow.
700-749: Good job, you're doing well.
750-850: Excellent! You're at the top of the class.
Later, we’ll discuss some steps you could take to potentially improve your score.
What Makes Up Your VantageScore 3.0?
The VantageScore 3.0 model breaks down the factors influencing your credit score into six key components, each of which carries a different weight in calculating your score.10
Payment history (40%): On time payments are the largest factor when it comes to calculating your VantageScore. In fact, one late payment could drop your score by up to 180 points!11
Age and Type of Credit (21%): How long you’ve had credit accounts and the types of credit you’ve had also play a role in calculating your score. Common types of credit include installment loans and credit cards. Older account ages help improve your score because they give lenders a longer-term view of how you manage money.12
Credit utilization (20%): Your score is impacted by how much credit you have access to and how much of it you’re using. Most experts recommend keeping your credit utilization ratio under 30%.13 Your credit utilization ratio is determined by dividing how much debt you have by the total amount of credit you have access to. VantageScore only considers revolving credit in calculating this ratio.14
Balances (11%): This component looks at your total owed balances. High balances may hurt your score even if you make on-time payments.
Recent credit (5%): Another component is how recently you’ve accessed new credit, such as applying for a new credit card or taking out a loan. This component looks at recent hard inquiries on your report. Try to avoid applying for credit you don’t need, as every hard inquiry stays on your credit report for two years and impacts your score.15
Available credit (3%): The smallest factor takes into consideration how much credit you have access to, as lenders look for people who aren’t trying to access more credit than they need. Additionally, this component considers how you’re using your credit. For example, if your utilization ratio is low but you’ve maxed out one credit card, your score may drop.16
Understanding what each of these components mean and how they impact your VantageScore may help you make choices that could boost your VantageScore over time.
Despite the introduction of the VantageScore 4.0 model in 2017, most lenders continue to use the 3.0 model.17 The main difference between the 3.0 and 4.0 models is the use of trended data in the 4.0 model.18
Trended data is a type of credit reporting that includes historical information about a borrower’s behavior over time, which provides a more comprehensive look at a person’s overall credit health.19
In 2022, VantageScore announced that it would eliminate data on medical debts in collections from their 3.0 and 4.0 scoring models, estimating that consumers with this type of debt would likely see score increases of as much as 20 points after the change was implemented.20
Ways to Improve Your VantageScore
Now that you have a better understanding of the factors that impact your VantageScore, let’s discuss a few steps you could take to help you improve it.
Pay Your Bills on Time: Consistently making payments on time is one of the most influential factors in your VantageScore. This includes not just credit card bills, but also rent, utilities, and any loan repayments.
Keep Your Credit Utilization Ratio Low: Your credit utilization ratio refers to the amount of credit you're using compared to your total credit limit. Keeping this ratio low, generally below 30%, shows lenders you're not overly reliant on borrowed money.21
Avoid Applying for Unnecessary Credit: Each time you apply for new lines of credit, a hard inquiry is made, which may lower your score. Additionally, each hard inquiry is recorded on your credit report, allowing lenders to see how often you’ve tried to take on new credit.
Correct Any Errors: Be sure to review your credit report on a regular basis to make sure there aren’t any errors, such as closed accounts still being reported as open. It’s also a good way to check for signs of identity theft, such as accounts you don’t recognize being reported under your name.
Tailor the tips above to fit your specific financial situation. For example, if you currently have a lot of credit card debt, create a timeline for lowering your credit utilization ratio and celebrate each milestone.
How Do I Check My VantageScore?
Now that you understand what a VantageScore is, you may want to check what yours is. There are a few ways you are able to go about this.
Visit VantageScore’s website: VantageScore’s website lists platforms that offer free access to your VantageScore.
Ask Your Lender: Whenever you apply for a line of credit or a loan, and the lender performs a hard credit pull, you're entitled to see the report.
Check with your bank or credit card provider: Some credit card issuers or banks provide a free report as part of their services.
Use a personal finance site: Several personal finance websites offer free access to your credit scores, including your VantageScore.
If you’re interested in gaining a more comprehensive understanding of your credit history, you could visit AnnualCreditReport.com to obtain a copy of your actual credit report. This website is authorized by the federal government to provide free credit reports from all three credit reporting agencies. While your credit report doesn’t usually contain your credit score, it’s a valuable resource that helps you monitor your credit history and ensure the reported information is accurate.
Understanding your VantageScore and how it is calculated may help you make informed decisions about your credit use and maintain a solid credit profile. Paying your bills on time, keeping your credit utilization low, and regularly checking your credit report for inaccuracies may all contribute to a higher VantageScore.
Your credit score is more than just a number. It’s a reflection of your financial health and reliability as a borrower. By taking the time to understand your VantageScore and how to improve it, you may be able to access better financial opportunities. Remember that building a good credit score is a marathon, not a sprint, and the best time to start is now.