Indeed, Credit Karma is pretty awesome, 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.
Let’s first go to the source. According to the official VantageScore website:
“Created by America’s three national credit reporting companies (CRCs)—Equifax, Experian and TransUnion—VantageScore Solutions’ highly predictive model uses an innovative, patented and patent-pending scoring methodology to provide lenders and consumers with more consistent credit scores across all three major credit reporting companies and the ability to score more people.”
OK, that was a lot of corporate speak, but here’s the reality: VantageScore 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?
Whereas the FICO scale runs from 300 to 850, VantageScore starts at 501 and runs to 990. And how good your VantageScore is falls into the following categories:
- 901-990 = “A” credit = Super Prime
- 801-900 = “B” credit = Prime Plus
- 701-800 = “C” credit = Prime
- 601-700 = “D” credit = Non-Prime
- 501-600 = “F” credit = High Risk
The VantageScore 3.0 model uses a 300 to 850 range. You can use this chart to see how 2.0 compares to 3.0.
You can see your Experian and TransUnion credit scores based on the VantageScore model in Credit Karma.
What Factors Into your VantageScore?
VantageScore is a predictive modeling tool and recently “upgraded” to VantageScore 2.0 (mmm…. software analogy).
VantageScore factors the following into your score.
- Payment History: Have you consistently paid your accounts in a timely manner?
- Age and Type of Credit
- Credit utilization ratio: How much of the total credit limit available to you are currently using?
- Balances: What is the total of your current and delinquent account balances?
- Recent Credit: How many recently opened credit accounts and credit inquiries do you have?
- Available Credit: What is the total amount of credit that you currently have access to?
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 market share versus FICO is not known, but according to VantageScore in May of last year, “four of the top five lending institutions and eight of the top 25 financial institutions are using VantageScore.” If that’s true, they’ve come a long way since 2006.
VantageScore currently claims to service:
- 4 of the top 5 financial institutions
- 5 of the top 5 credit card issuers
- 2 of the top 5 auto lenders
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 TransUnion and VantageScore for free. The others, you’ll have to pay for. Don’t do it unless you have to and go only through the official websites if you do.
- 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?