VantageScore: Deciphering Your Credit Smartly

Among the credit scoring models available, VantageScore stands out as a suitable resource for assessing credit risk.

In the personal finance universe in the United States, the credit score appears as a primary indicator of someone’s financial health.

Conceived by the three major credit agencies (Equifax, Experian, and TransUnion), VantageScore seeks to offer a comprehensive perspective on credit history, directly influencing the approval of loans, credit cards, and other forms of financing.

What is VantageScore?

VantageScore represents a credit scoring model that aims to provide a more accurate and consistent assessment of a consumer’s credit risk.

Created in 2006, it emerged as an alternative to the FICO Score, the more traditionally used model.

One of the main advantages of VantageScore is its ability to score a broader number of consumers, including those with limited or non-existent credit history.

This breadth is achieved through a more flexible scoring model that considers a wider range of financial data.

Additionally, it is distinguished by its frequency of updates, surpassing other models in this aspect. The constant updates allow lenders to have a more recent and accurate view of a person’s credit risk.

In a dynamic economic scenario, where a user’s financial situation can change rapidly, this continuous updating proves particularly useful.

How is it composed?

VantageScore is calculated based on various factors, each with a distinct weight in the final score. The main factors include:

• Payment History: This is the most relevant factor, accounting for about 40% of the score. Timely payments have a positive impact, while late payments or defaults can significantly harm the score.
• Age and Type of Credit: This factor represents approximately 21% of the score and takes into account the age of credit accounts and the diversity of credit types used (credit cards, loans, etc.).
• Credit Utilization Ratio: Utilization accounts for about 20% of the score and measures the amount of credit used relative to the total limit. Using a high percentage of available credit can indicate greater risk to lenders.
• Total Balance: Represents about 11% of the score and considers the total amount of debt.
• Recent Credit Behavior: This factor accounts for about 8% of the score and assesses the most recent credit activities, such as opening new accounts or applying for credit.

VantageScore Ranges

VantageScore employs a scoring scale ranging from 300 to 850, similar to the FICO Score. The higher the score, the lower the credit risk. The score ranges are generally divided as follows:

• 300-499: Very Poor
• 500-600: Poor
• 601-660: Fair
• 661-780: Good
• 781-850: Excellent

Each of the factors mentioned has a distinct weight in the calculation of the score. However, it is important to note that the model is dynamic, and the weights of the factors may vary depending on the version, the model, and economic conditions.

What is considered a good VantageScore?

A VantageScore seen as good is generally in the range of 661 to 780. A score in this range indicates a solid credit history and is considered a low-risk borrower.

However, to obtain the best interest rates and credit conditions, it is ideal to have an excellent score, which in this case is above 780.

Having a good VantageScore can open doors to various financial opportunities, such as approval for loans with lower interest rates, obtaining credit cards with better benefits, and renting properties more easily.

What is the difference between VantageScore and FICO Score?

Although both models assess credit risk, there are some important differences between VantageScore and FICO Score. One of the main differences is how the models handle limited credit histories.

VantageScore is able to score a broader number of consumers with limited credit history, while the FICO Score may require a longer history.

Another difference is how the models consider credit information. VantageScore tends to be more flexible and considers a wider range of financial data, while FICO Score may be more restrictive in the types of data used.

Additionally, VantageScore is updated more frequently than FICO Score, which can result in a more recent and accurate assessment of an individual’s credit risk.

Do lenders use VantageScore credit scores?

Many lenders use VantageScore as part of their credit risk assessment process.

Although the FICO Score is the most widely used model, VantageScore has been gaining popularity in recent years, especially among lenders seeking a more inclusive and updated assessment of credit risk.

It is important to remember that each lender has its own risk assessment criteria, and some may use different credit scoring models or consider other factors besides the credit score.

Is it possible to improve my Score?

It is certainly possible to improve your VantageScore, provided you adopt healthier financial habits and monitor your credit history. Check out some tips to boost your score.

• Pay bills on time: Payment history is the most important factor. Make sure to pay all your bills on time, including credit cards, loans, and utility bills. Set up reminders or automatic payments to avoid delays.
• Avoid opening new accounts: Opening many credit accounts in a short time can indicate greater risk to lenders. Avoid applying for new credit cards or loans unless absolutely necessary.
• Use less credit: Keeping your credit utilization ratio low is crucial for a good score. Try to use less than 30% of your total credit limit.
• Check your reports: Regularly check your credit reports to identify errors or suspicious activities. Correct any mistakes found to ensure your score is accurate.

How do I check my VantageScore?

You can check your VantageScore for free on various personal finance websites and apps. Additionally, you can request your free credit reports from the three major credit agencies (Equifax, Experian, and TransUnion) once a year.

Remember that your VantageScore may vary depending on the credit agency and the model used.

By monitoring your score and adopting healthy financial habits, you are already taking the first steps to improve your score and achieve your financial goals.

To stay updated and well-informed about the financial universe, continue exploring our site and jotting down all the tips! Take advantage of this publication where we explain if it’s really worth having multiple credit cards.