A Guide to VantageScore Scoring Model

0
44

VantageScore scoring model is one of the two major credit scoring models used by lenders and credit card issuers to assess your financial responsibility. This score ranges from 300 to 850. If you have a higher credit score, this presents you as a financially responsible person.

A good score increases your ability of getting loan approvals, credit cards and low interest rates. In case you have a bad credit score, you need to fix your credit score.

VantageScore

The three credit bureaus introduce the scoring model in March 2006. Equifax, TransUnion and Experian introduced it to compete with the FICO score, the most popular credit scoring model. Both the FICO score and the VantageScore models are widely used. However, factors and formulas used for credit score calculations are different.

VantageScore uses credit reports data to calculate the score using an algorithm.

VantageScore Calculation

Calculation of the credit score using this model depends on the version of the model. Before 2017, VantageScore 3.0 has been the best-known version. VantageScore 4.0, released in 2017, calculates the score in a slightly different way. The following table illustrates the factors and the respective weights.

Factor Weight
Available credit3%
Recent credit5%
Balances11%
Credit utilization20%
Dept of credit21%
Payment history40%

Changes made in the VantageScore 4.0 model include more emphasis on payment history, new credit and less emphasis on depth of credit and balances.

The following table illustrates the factors and respective weights for the VantageScore 4.0 model.

Factor  Weight
Available credit2%
Balances3%
Recent credit11%
Credit utilization20%
Depth of credit20%
Payment history41%

The payment history looks at the timely payment of bills. Late payments reduce your credit score and stay on your credit report for seven years.

Depth of credits is the age of your credit accounts. Your credit report can have the oldest, average and youngest account age. Older accounts can give more information about your ability to manage your finances. The depth of credit also considers the type of accounts you are using.

Revolving and installment debt are the two main types. Revolving debts such as credit cards have a monthly spending limit.

Personal loans, auto loans, mortgage and other installment loans have a predictable monthly payment. You should be able to manage both types of credit as this helps in increasing your credit score.

Credit utilization is the ratio of credit used and credit you can access. Though more focus is on revolving credit, balance on installment loans is also considered. Keep your credit utilization under 30%. By using more than 30%, you are showing that you heavily rely on credit. You are living beyond your means.

The balance is the total balance on your current and delinquent credit account. High balances are not good for your credit score.

The recent credit considers the number of hard inquiries and recently opened credit accounts. A lender runs hard inquiry whenever you apply for a new line of credit or a new loan. Hard inquiries on your credit report drop your credit score. However, knowing that people often apply for new loans or credit cards, this scoring model considers all hard inquiries made during a span of 14 days as a single inquiry.

You should avoid opening several new credit accounts together as lenders often see it as a red flag. This indicates your increased reliance on credit. This is the reason why the VantageScore 4.0 scoring model has increased the weight of this factor.

Available credit considers the credit available on your revolving credit accounts. A large amount of available credit can increase your credit score.

Vantagescore 4.0 Credit Score

Credit tierCredit score range
Superprime 781- 850
Prime 661- 780
Near Prime 601- 660
Subprime 300- 600

To fix your credit score, you have to work on all the factors considered by this model to calculate your credit score.