Buying a home can be an exciting part of a person's life. It represents a sense of accomplishment, and also one of the biggest investments someone can make in their life. But it can also be a very scary process, because you it can often be a long, drawn out process. Some of the trepidation people have is whether they'll qualify for a mortgage.

A prospective home buyer with a limited credit history or past credit slip-ups can face difficulty finding a lender to obtain a mortgage. Lenders are frequently unwilling to take on the risk of approving borrowers who lack strong FICO scores, which require the regular use of credit and a track record of on-time payments. Fortunately for such borrowers, a new method to measure creditworthiness, known as VantageScore, has emerged to compete with FICO. The following tips can enable homebuyers to identify mortgage lenders that use VantageScore.

Key Takeaways

  • Vantage was developed by the three different credit rating agencies as an alternative to the FICO score.
  • The model requires less credit history to establish a score and is more forgiving with certain types of derogatory information.
  • People interested in using VantageScore to get a mortgage should ask lenders which model they use.
  • According to VantageScore, more than 2,400 lenders use the model to assess consumers' creditworthiness.
  • Brokers can also help steer mortgage applications to lenders who exclusively use VantageScore.

What Is a VantageScore?

VantageScore is a consumer credit rating score created in 2006 as an alternative to the FICO score. Vantage was developed by the three different credit rating agencies: Equifax, Experian, and TransUnion. Using a different method and rating scale than FICO, it requires less credit history to establish a score, and it is more forgiving with certain types of derogatory information, such as paid collections and late credit card payments.

Here's how it works. The VantageScore uses information provided by the three agencies from consumer credit files. The following is a list of data compiled to determine a consumer's VantageScore—ranked in order from most to least influential:

  • Payment history
  • Type of credit and age of the account(s)
  • Credit limit usage by percentage
  • Total balances and debt
  • Credit inquiries
  • Available credit

The score ranges from 501 to 990, where a lower score is considered a higher risk. Conversely, a higher score is deemed a lower risk. This means a consumer with a score closer to 501 is considered a high risk, while someone who has a score closer to 990 is worthy of credit.

VantageScore vs. FICO Score

FiCO scores are the most widely used scores used by lenders to determine the creditworthiness of consumers. This means more institutions use FICO over any other scoring model to decide if someone should get a loan, mortgage, or any other credit product. Most lenders require consumers to meet minimum FICO scores before advancing any credit.

Like the VantageScore, FICO uses a combination of factors based on a consumer's credit file to determine a score. These include—from most influential to least:

  • Payment history
  • Amounts owing on each account
  • Credit history length
  • New consumer credit files opened
  • Mixture of credit

FICO generates scores between 300 and 850. Any score that falls below 630 is considered poor. Scores between 630 and 690 are deemed fair, while those between 690 and 720 are good. Anything over 720 is considered excellent.

Ask Before Signing

The best way to find out is to ask which kind of scoring model the lender uses. Based on the numbers provided by VantageScore, there's a good chance you'll find a creditor who uses the model. According to VantageScore, more than 2,400 lenders use its scoring model including some of the largest U.S. banks.

VantageScore is embedded into some of the major platforms across the financial industry. It's the only scoring model embedded in the Consumer Financial Protection Bureau (CFPB) and the Nationwide Mortgage Licensing System & Registry.

Don't Put Your Eggs in One Basket

Before you go out, keep in mind that few lenders have abandoned FICO entirely. Most use a combination of both—particularly for borrowers with credit issues. This is why it's important for consumers to understand the scoring model used by a lender before signing a loan application and agreeing to credit being pulled. Submitting loan applications haphazardly as a way to land a hit can result in excessive credit inquiries, which can further depress a credit score.

Few lenders have abandoned the FICO scoring model completely.

Part of a loan officer's job is to understand his employer's criteria for approving applicants. This includes knowing which credit models are used and how they are weighted versus one another. Borrowers who want to be scored by VantageScore should glean this information from the loan officer up front.

Use a Mortgage Broker

A mortgage broker is a good option for credit-challenged borrowers because brokers work with many lenders, all with different approval criteria. A good broker can look at a borrower's application and determine which lender in his portfolio best fits that borrower's needs. If a broker's portfolio of lenders is robust, it should include some that use VantageScore as a primary source of credit information. The borrower should ask the broker to steer his application in the direction of such lenders.