What it means
A credit score is a short summary of a long credit report. VantageScore reads the report, which lists accounts, balances, payment history and enquiries, and produces a score that lenders can use to approve, price or decline a loan quickly.
The model was launched in 2006 by Equifax, Experian and TransUnion, the three main credit bureaus in the United States. Because it was built by the bureaus themselves, it uses the same scoring approach across all three reports, which makes comparisons easier.
Recent versions use a range of 300 to 850, the same range as the most familiar FICO scores. The factors considered include payment history, how much of the available credit is in use, the length and mix of credit history, recent applications for credit and the level of balances.
One difference from some older models is that VantageScore can often score people with limited or recent credit histories, which widens access to those who might otherwise have no score. Lenders and businesses that extend credit, such as landlords, utilities and lenders, may use it as one input in their decisions.
The exact formula is proprietary, so nobody outside the company can recompute a score from scratch. What a person can do is manage the visible drivers, like paying on time and keeping balances low relative to limits.
Different lenders may use different scores and different versions, so the number a person sees on a free app may not be the one the lender sees. For a business using credit scores in decisions, it is important to use the version that matches the policy and to treat the score as one part of an overall assessment.
In practice
Real-world examples.
Example
A young professional with a short credit history applies for a car loan. The lender checks a VantageScore, which can be produced even with limited history. The score helps decide the interest rate offered.
Example
A landlord screens rental applicants and sees VantageScores on the credit reports. An applicant with a high score and no missed payments is accepted without a larger deposit. A second applicant with a low score is asked for a guarantor.
Example
A retailer offering instalment plans to customers uses a score cut-off to approve or decline applications automatically. The finance team monitors the share of approved customers who miss payments. It adjusts the cut-off if losses are higher than planned.
Formula
Calculation
The score itself is calculated by a proprietary model, but one of its main inputs can be worked out directly.
Credit utilisation = Total revolving balances / Total revolving credit limits
A borrower has two credit cards with limits of $6,000 and $4,000, so total limits are $10,000. Balances are $2,000 and $1,000, so the total balance is $3,000. Utilisation = 3,000 / 10,000 = 30%. If the borrower pays down $2,000 across the cards, the balance becomes $1,000, and utilisation falls to 1,000 / 10,000 = 10%, which is generally viewed more favourably by scoring models.Case study
Seen in the real world.
This illustrative case follows a fictional lender, Pinecrest Credit, which approved personal loans using a single credit score and a fixed cut-off. Its risk team noticed that many applicants with thin credit files were being declined even though they had no missed payments.
The team ran a trial in which applicants with limited files were also scored with a model that could handle shorter histories, such as VantageScore. They approved a small test group of borrowers who scored above a revised cut-off and tracked their repayments for a year.
The default rate in the test group was close to the main portfolio, and the lender grew its customer base by about 8% without a rise in losses. The fictional case shows how the choice of scoring model can change who gets access to credit.
Watch out
Common mistakes.
- Assuming all credit scores are the same. VantageScore and FICO use different models and versions, so the same person can have different numbers.
- Believing that checking your own score lowers it. A personal check is a soft enquiry that does not affect the score, unlike a lender's application.
- Focusing only on the score and ignoring the report. Errors in the underlying report can lower the score and should be disputed with the bureau.
Questions
People also ask.
Who created VantageScore?
It was created by the three major credit bureaus, Equifax, Experian and TransUnion.
What is a good VantageScore?
Lenders set their own thresholds, but on a 300 to 850 scale, higher scores are better and the top range is viewed as the lowest risk.
How can I improve my score?
Pay all bills on time, keep card balances low compared with limits, avoid unnecessary applications and keep older accounts open where sensible.
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