WHAT IS 'VantageScore'

VantageScore is a consumer credit rating product developed by three credit rating agencies, Equifax, TransUnion and Experian, as an alternative to the FICO Score, created by Fair Isaac Corporation.

BREAKING DOWN 'VantageScore'

VantageScore was launched in 2006, and uses a different rating scale then FICO’s. VantageScore is calculated through a weighted average of a consumer's available credit, recent credit, payment history, credit utilization, depth of credit and credit balances.

VantageScore places the greatest weight on payment history and credit utilization, just as the FICO Score does. FICO develops scores with data from each credit reporting agency separately, while VantageScore runs its statistical analysis with a combination of all three. As a parallel to its numerical score VantageScore also has an alphabetical score ranging from A to F, with a determination of A meaning that a consumer is the most credit worthy. Most lending institutions continue to use the FICO Score as it has been around much longer, since 1956.

How VantageScore Works

Both VantageScore and the FICO score models operate on data stored in the consumer credit files and maintained by the three national credit bureaus. The models then conduct a statistical analysis on the data to predict the likelihood a consumer will default on a loan. Both VantageScore and FICO models represent the risk of a loan default in the form of three-digit scores, with higher scores indicating a lower risk. VantageScore generates a score between 501 and 990, while FICO generates a score between 300 and 850.

Anyone with a VantageScore under 630 is considered to have poor credit. An average or fair credit rating is anywhere between 630 and 690. Between 690 and 720 is considered a good credit score, and anything over 720 is considered to be excellent.

The components of a VantageScore represent payment history, depth of credit, utilization of available credit, balances and recent credit. Payment history refers to whether or not a consumer makes timely bill payments, and depth of credit refers to the age of a consumer’s credit history and type of accounts they have opened. Balances are total outstanding loans, and recent credit includes the number of hard inquiries that have been made into a consumer’s account.

Utilization and available credit include how much total revolving credit a consumer uses. For example, if someone has a $10,000 line of credit in one month and that person has drawn $5,000 from that line, their credit utilization would be 50 percent.

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