I’ve received a positive response from people who signed up for Credit Karma’s free credit score service after I gave a Credit Karma review based on my own experience. Indeed, Credit Karma is a useful consumer credit tool, but a few people had questions around the “VantageScore” component that is an added bonus within your account. I had wondered what a VantageScore is myself, so I did a little research and thought I’d share what I found out.
What is “VantageScore”?
What is “VantageScore”? Let’s first go to the source. According to the official VantageScore website:
Founded by Experian, Equifax, and TransUnion in 2006, our mission is to use data analytics to drive innovation and inclusion—giving consumers more credit access, and helping lenders make better lending decisions. Millions of consumers use our scores to track their creditworthiness and monitor their credit health. Thousands of lenders use billions of VantageScore scores each year to enable more borrowers to access the credit they need. With the ability to score approximately 96% of the U.S. adult population, VantageScore is a key driver of equitable access to mainstream credit.
OK, that was a lot of corporate speak, but here’s the reality: VantageScore, now on its 4th iteration (VantageScore 4.0) was put together by the three credit bureaus – Experian, TransUnion, and Equifax in 2006 in order to compete with the Fair Isaac Corp. Fair Isaac models the FICO score, which had come to dominate the market as the preferred score used by lenders when issuing credit. VantageScore is FICO’s competition. The VantageScore consortium wants a piece of that pie.
Regardless of motives, more lenders are increasingly using VantageScore to rate your credit. It’s to your benefit to know what a good score is and how you are rated so that you can shop around and improve your VantageScore.
What is a Good VantageScore Range?
FICO and VantageScore have credit ranges (or scales) for their scores that start at 300 and go up to 850. FICO uses the following score ranges:
- 300-579: Poor (16% of consumers)
- 580-669: Fair (17% of consumers)
- 670-739: Good (21% of consumers)
- 740-799: Very Good (25% of consumers)
- 800-850: Exceptional (21% of consumers)
Compared to FICO, the VantageScore 4.0 model uses the following uses the following score ranges:
- 300-499: Very Poor (5% of consumers)
- 500-600: Poor (21% of consumers)
- 601-660: Fair (13% of consumers)
- 661-780: Good (38% of consumers)
- 781-850: Excellent (23% of consumers)
You can see your Experian and TransUnion credit scores based on the VantageScore (3.0) model in Credit Karma.
What Factors Into your VantageScore? (The VantageScore Model)
Before we get to VantageScore, let’s review how FICO scores are calculated:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
VantageScore is a predictive modeling tool and recently “upgraded” to VantageScore 4.0. The VantageScore model factors the following into your score.
- Credit Utilization Ratio: How much of the total credit limit available to you are currently using? (extremely influential)
- Credit Mix and Experience (highly influential)
- Payment History: Have you consistently paid your accounts in a timely manner? (moderately influential)
- Age of Credit History (less influential)
- New Accounts (less influential)
Unfortunately, VantageScore no longer shares what percent (weighting) of each factor comprises your score.
Why Does VantageScore Matter?
When you go to apply for credit your lender is going to look at your credit score. Your FICO score was the primary method that most lenders used for a long time.
Exact VantageScore usage versus FICO is not known, but according to VantageScore:
- 9 of the 10 largest banks and 43 of the 100 largest credit unions used VantageScore credit scores in one or more lines of business.
- More than 2,600 financial institutions have use VantageScore.
The bottom line is the only score that matters is the one your lender is using. If it’s FICO, then you should worry about your FICO score. If it’s VantageScore, then worry about that. If it’s one of the individual credit bureaus – then worry about that one. Ask every company you apply for credit from which score they use.
It’s also why it pays to shop around for the best rate. If one lender is using FICO and another VantageScore and you have a better FICO rating, for example, you might get a better rate offer from the lender that uses FICO.
Credit Karma offers you a VantageScore for free (they also offer free credit report access now). Some credit card providers offer a free FICO score as well.
- Have you borrowed from a lender that uses VantageScore?
- Did you find a difference in how you were rated between FICO and VantageScore?
- Did you shop around based on whether your lender used FICO or VantageScore?
I wasn’t really aware of vantagescore. I just thought lenders were still using FICO scores. I wouldn’t have even thought to ask whether they are using FICO or vantagescore.
It would be very interesting to know the true market share for vantage score. I’m sure that the three credit bureaus are pushing hard for lenders to use this vantagescore.
More of the same… another “I-love-debt” score.
I wonder how someone with a paid-for house and a million in the bank would score…
You bring up a good point. In order to score well you have to love debt, but not love it TOO much, if you know what I’m saying.
Good point Wizard…though if you have a million in the bank and you are trying to get a mortgage or a car, then you can probably put enough down to get the best available rate regardless.
My mortgage was through B of A last year, and they were still checking my FICO…I guess they are the 1 in 5 lending institution.
It was excellent to know how Vantage score coexists with the traditional FICO score. And to have a better deal, the advice given on how a borrower should ask if the lenders are using which credit score tool seems a nice tip. Thanks for such a useful mention!
I had no idea what the Vantage score was, thanks for the resources! I bet my VS is low, because I have great credit scores through FICO and get denied by credit card companies!
I had never heard of a VantageScore. Thanks! I have never encountered anyone who uses it though. Most of the banks I use use Experian for the FICO score. Which do you think is better based on what you know of each?
I work for a bank and, like most other institutions, we use FICO.
I believe the VantageScore can be very misleading to a lot of consumers. Occasionally I will speak to an irate customer who wasn’t approved for a loan. They will tell me their “credit score” is 780. However, one look at the application may show the FICO much lower – approximately 620 for example. (not an exact figure). No wonder they’re upset and confused!
There are many consumers who get the free VantageScore and it’s not clearly differentiated from FICO. I suspect this is intentional (at least in part) from VantageScore, but it truly doesn’t serve the consumer.
The whole thing can be very confusing, even for a banker. I truly empathize with loan applicants who are overwhelmed by the calculations used in approving a loan.