4/12/2023
The VantageScore is usually the credit score that many banks and other entities let you review at no cost and serves to evaluate your financial behavior, scoring whether you are more or less reliable to pay your debts. If you are not yet familiar with its dynamics, we show you its fundamental aspects.
What is the VantageScore?
VantageScoreIn a nutshell, the VantageScore is a credit scoring model that was launched by the 3 main credit bureaus: Equifax, Experian and TransUnion. This was in 2006 and at the time was intended to compete with the FICO Score.
Although both are still in place, the calculation of each score obeys different variables. The latest version of the VantageScore is 4.0, which was released in 2017, and the FICO Score is now in its eighth edition.
In terms of the calculation, the former takes into account credit reports hosted by the 3 largest credit bureaus. This data is used to feed an algorithm that produces a score based on factors that we will see below.
Financial institutions often consult this benchmark to determine your degree of risk. According to a 2019 study, fintech/personal loan lenders and credit card issuers use it the most.
In addition, 9 of the 10 largest banks and 29 of 100 most relevant credit unions use it in various business areas.
How is the VantageScore calculated?
It is important to know that the VantageScore calculation will depend on the version you want to use as a reference. While version 3.0 is the best known in the financial world, version 4.0 is already 6 years old and is a model that gives a different weight to the variables that are designated for the previous edition.
To see it more clearly, version 3.0 is calculated as follows:
| FACTOR | WEIGHT
|
| Payment history | 40% |
| Credit depth | 21% |
| Credit usage | 20% |
| Balances | 11% |
| Recent credit | 5% |
| Available credit | 3% |
Unlike the previous model, the 4.0 model has placed greater emphasis on variables such as recent credit and payment history. This is illustrated as follows:
| FACTOR | WEIGHT |
| Payment history | 41% |
| Credit depth | 20% |
| Credit usage | 20% |
| Recent credit | 11% |
| Balances | 6% |
| Available credit | 2% |
After these illustrative tables, it is worth clarifying some of these concepts.
Credit Depth
This factor has to do with the amount of time in your history and the accounts you have opened. This involves your average number of accounts and most recent/oldest account.
Greater depth or age gives the lender a better perspective on your financial behavior and also helps you raise your VantageScore.
Similarly, this category considers the types of credit accounts you have taken out. In essence, there are 2 types: installment loans and revolving financing, such as credit cards and lines of credit, which have a set spending limit and your monthly balance can vary.
In contrast, mortgages, car loans and other installment loans have fixed installments. When you demonstrate that you can manage both types of accounts well, rather than just one, it reflects positively on your credit score.
Credit Utilization
This factor reveals how you have access to credit and how much you use based on the amount available. Although it focuses more on revolving financing, it also takes into account installment loans.
The relationship between the credit you have and what you use is known as the credit utilization ratio.
While some specialists suggest that this value should be below 30%, others recommend not exceeding 20%. The important thing is to keep it above 0%. When you show a very high rate, it may indicate that you are very dependent on your credit cards and are accumulating debts that you cannot pay.
Payment history
This variable gathers how your payment behavior has been since your file began. The longer you take to pay a bill, monthly payment or service, the greater the impact on your score.
It also includes whether you have made a late payment lately. This stays on your record for 7 years, but its severity decreases over time.
How good is your VantageScore?
With the advent of version 3.0, there was a change in the scale on which the score was assigned, moving from a range between 501 and 990 to one between 300 and 850.
This new designation is in line with the values used by the FICO score. However, each creditor or lender chooses its minimum score requirements for you to qualify for a financing product.
As for the valuation of this score, the levels are:
- Excellent: 781 to 850
- Very good: 661 to 780
- Fair: 601 to 660
- Poor: 300 to 600
The VantageScore is as important as the FICO, so you should check it frequently. This way you can be sure to see your progress and take care of your finances.
Español: ¿Qué es el VantageScore y cómo se calcula?