VantageScore is fast becoming a preferred option for lenders, even if the FICO score is still the most widely used credit scoring model in the United States.
VantageScore, which was created collaboratively by the three major credit agencies (Experian, Equifax, and TransUnion), was utilized by lenders over 12 billion times between the middle of 2018 and the middle of 2019.
The first version was created in 2006. As of right now, VantageScore 3.0 reflects the most recent developments in credit scoring. Therefore, don’t assume that your next lender will ask to see your FICO scores. Review the specifics of VantageScore 3.0 to comprehend its operation and significance.
Why Credit Scores Matter
Similar to other credit scoring algorithms, VantageScore determines your creditworthiness by evaluating the data in your personal credit report and assigning you a number of grades.
A lender will review both your credit record and credit score when you apply for a loan or even a credit card. It helps them determine your likelihood of paying back the loan or credit card amount.
Lenders will give you the finest loan terms and conditions if your credit score is good. It is highly probable that you will be eligible for a longer payback time, a larger loan amount, and a low-interest rate. Furthermore, when your credit score is high, you’ll be able to choose from a far wider range of loans and credit cards.
Depending on the lender and your real credit ratings, you might not even be authorized for a loan or credit card if your credit is poor. Even if you are approved for a loan, the interest rate will be significantly higher. It’s also likely that your borrowing capacity will be lower than that of someone with a higher score.
Even if you don’t have any immediate plans to apply for a loan, your credit score may still have an impact on you. To determine how trustworthy you would be as a tenant or employee, both employers and landlords have the ability to request access to your credit history.
How VantageScore 3.0 Works
Since the FICO score range is the one that customers are most familiar with, the new VantageScore 3.0 range adheres to it. The new credit scoring model employs a credit score range of 300 to 850, with 300 denoting the lowest score and 850 the highest, in place of the previous 501 to 990 scale.
The lenders who may already have an automated system in place based on the FICO scoring range benefit from the shift in VantageScore credit score values.
Six categories are taken into account when using VantageScore 3.0 to calculate a credit score. Although each person’s weight in each category may differ, the order of priority is always the same. You may view your current credit score and the elements influencing it with this method.
How VantageScore 3.0 Is Calculated
Similar to other credit scores, VantageScore 3.0 is created using data from a customer’s credit record. But unlike other credit ratings, it employs a distinct scoring system and gives differing weight to different elements. Each component is explained here in order of significance.
Payment History
VantageScore 3.0 is largely based on your prior payment history, much as your FICO score. After all, at least from the perspective of major credit bureaus and lenders, past behavior is one of the most dependable indicators of future behavior.
When your credit report shows that you have late payments, your credit ratings drop. Regretfully, you also jeopardize your future prospects of being granted finance.
Credit Age and Type
The length of time and type of credit you have is the second most significant factor. Your credit ratings will benefit more from having older credit accounts.
Additionally, having a variety of credit kinds will help you score higher on VantageScore. It’s sometimes referred to as your “credit mix.” It is best to have both installment loans and revolving credit, such as credit cards.
Credit Utilization
This is yet another important component that affects your VantageScore. The ratio of your credit usage to your total credit limit is known as credit utilization. If you are on the verge of maxing out your credit cards, you will not do well in this category.
Total Balance of Debt
The ratio of debt to available credit is taken into account by VantageScore. Your total debt load is another factor taken into account by the credit scoring methodology. Paying off your debt is an excellent place to start if you’re looking to raise your credit scores because it benefits you in both of these areas.
Inquiries and Recent Behavior
Both VantageScore and FICO calculate the number of recent hard inquiries and new credit lines that you have established on your credit report. A lot of queries and new credit cards may be a sign that things are getting tight financially.
Available Credit
Not to mention, VantageScore considers the amount of credit you are granted. The least significant category is this one. However, requesting a credit limit increase from one or more of your present creditors is a fast approach to improving your credit score by a few points. Raising your credit limit will reduce your credit utilization ratio as long as it doesn’t tempt you to spend more money.
Who Uses VantageScore?
More than 3,000 lenders and financial organizations assess prospective borrowers’ creditworthiness using VantageScore. Landlords, insurers, and other businesses that depend on credit scores to make defensible decisions about financial risk utilize VantageScore in addition to lenders.
The following lenders use VantageScore:
- American Express
- Capital One
- Credit Karma
- Lending Tree
- SoFi
- Synchrony Bank
- Upstart
- USAA
Who VantageScore Helps
Comparing VantageScore 3.0 to FICO, its rival, more information is taken into account. Up to 30 million people who would otherwise be considered to have too little credit benefit from this.
It examines more comprehensive credit data points, often spanning up to 24 months of credit activity. This is beneficial to those with “thin” credit—those who do not use their credit cards frequently.
It’s not like their credit is inherently poor. It’s possible that they don’t use their credit frequently enough to have a complete history. VantageScore 3.0 is especially beneficial for prospective borrowers who are establishing (or repairing) their credit.
Completely paid collection accounts have no negative impact on your credit score when using VantageScore. Just like they always have, they will continue to appear on your credit report for a maximum of seven years. They won’t be taken into account, though, when determining your VantageScore credit scores.
Moreover, VantageScore disregards any item in collections under $250, whether or not it has been paid for. Those attempting to overcome previous financial difficulties may find great assistance from these new rules.
What is my VantageScore?
There are several methods available for acquiring your VantageScore:
1. Check with your credit card issuer: Your VantageScore may be included in your monthly statement or online account summary from certain credit card issuers.
2. Get a copy of your VantageScore: You can get a copy of your VantageScore from one of the credit bureaus or directly from the VantageScore website.
3. Check with your lender: Your VantageScore might have been sent to you as part of the credit application process if you have recently applied for a loan or other credit.
Tips for Increasing Your VantageScore
There are a few efficient strategies to either maintain or improve your VantageScore, regardless of whether your credit score is precisely where you want it to be or needs some work.
Pay Bills Regularly
Paying all of your bills on time each month is the first step, as you can see from the credit scoring categories. It’s possible that a particular creditor will record your late payments even if they don’t report your on-time ones. Pay your bills on time every month to avoid having your credit score drastically lowered for any payment that is made more than 30 days late.
Lower Your Credit Utilization
To prevent having a poorer credit score, try to restrict your debt to no more than 30% of your credit limits. That amount can serve as your starting point for debt repayment. You may feel more confident to continue working toward debt elimination when you have this figure, which is far more doable than zero.
Minimize Credit Inquiries
Even while a single inquiry only deducts a few points from your VantageScore, if you’ve applied for several credit cards or loans, those points can quickly mount up. Go slow and only apply for credit when absolutely necessary. Ask for pre-approval whenever you can so that you can compare offers without causing a hard inquiry to be made on your credit history.
Mix Up Your Credit
Although credit cards are the most often used form of credit, your credit report should include information on other credit types as well. Whether it’s a personal loan, auto loan, or mortgage, installment loans are equally crucial.
It goes without saying that you shouldn’t increase the amount of debt you have only to diversify your credit. Making loan payments as opposed to only credit card payments, nevertheless, could improve your credit score.
Keep Old Accounts Open
It’s beneficial to keep previous accounts active even if you aren’t using them longer because your VantageScore is influenced by the duration of your credit history.
Although they don’t immediately vanish from your credit report, they do so ten years after they are closed. Your average account age may drop significantly as a result, and your credit score may also decline.
Several distinctive factors distinguish VantageScore from the more conventional FICO score. Not all distinctions are extremely great. However, it does present a number of chances for customers who are attempting to get past a less-than-ideal financial background or who do not have a long credit history.
Knowing how VantageScore 3.0 operates may help you raise your score since lenders are increasingly using this form of credit scoring when approving loans and credit.
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