What VantageScores are, How They Work

FICO scores may get all the attention. However, VantageScores are becoming more widely used by lenders, say experts.

"The model continues to gain traction," says Sarah Davies, senior vice president of product management at VantageScore. For example, "many very large credit card issuers are using the score," she says, including "four of the top five financial institutions."

Developed in 2006 by the three major credit bureaus, Experian, TransUnion and Equifax, the scoring model has struggled to catch up to FICO in popularity. "FICO is still the most commonly used scale or scoring system," says Steve Brobeck, executive vice president of the Consumer Federation of America.

Mortgage lenders are especially partial to FICO, which has been around since 1956. However, "VantageScore, I think, is slowly increasing in use," says Brobeck, particularly with other lenders. "So if your score is from a credit card issuer or even an auto loan, it might be based on the Vantage scale."

If you're thinking about purchasing a VantageScore -- or if you know that a particular lender is using it -- here's what you need to know about the score.

1. Your VantageScore is scaled differently from other credit scores.

When you purchase a copy of your VantageScore, you may notice that it doesn't look like your other credit scores. That's because "VantageScore is different in that its scale is different," says Rod Griffin, director of public education at Experian.

For example, the lowest possible VantageScore is 501 while the highest possible score is 990. By contrast, the lowest possible FICO score is 300, while the highest possible FICO score is 850.

The difference in ranges can be confusing if you're trying to compare your different scores. However, the only thing you really need to worry about, say experts, is how your score compares to others on the same scale. "That's what's important," says the Consumer Federation of America's Steve Brobeck. "The relationship of your score to other scores from that source."

VantageScore helps take the guesswork out by assigning a letter grade to each score. The grades, modeled after the letter grades you received in school, are designed to make it easier to figure out where you fall on the VantageScore scale, says Griffin.

So, for example, "C is a passing grade," he says. "It's not great. It's not bad. If you're in a low C range, you may not qualify [for a loan] and if you do, it may not be at the best rates."

2. Your most recent information matters.

Your VantageScore is also based on many of the same factors as your FICO score. For example, says Griffin, your "payment history is the first and most important part of your credit score" and accounts for 28% of your score. The amount of credit you use in proportion to the amount of credit you're allowed is the second most important part of your VantageScore, he says, and accounts for 23% of your score.

The biggest chunk -- almost a full 30% -- of your VantageScore, however, is based on your recent credit behavior; how often you have applied for credit in recent months, how many new credit accounts you have opened and how you've been doing lately with the credit you already have.

"That kind of frightens people," says Griffin. "It looks like a huge piece of the pie." However, "recent credit really has a very minimal effect on the vast majority of consumers," he says. As long as you continue to pay your bills on time and don't go crazy applying for new loans, you should be fine, says Griffin. "What it really represents is a small percentage of people who are having difficulty in the near-term or in the recent past."

The importance that VantageScore places on recent credit sets it apart from FICO, which gives significantly less weight to it. Recent credit used to play a much smaller role in VantageScore's model. However, after completing research that found that recent credit behavior is a better predictor of how a consumer will behave in the future, the credit score provider revised its system.

"Credit scores are built on what actually happens and how insightful it is on whether people pay their debts on time," says VantageScore's Sarah Davies. Looking at recent credit behavior "provided a tremendous amount of insight into whether a consumer was going to pay their debts on time in the future."

3. You may still have a VantageScore, even if you have a very thin credit file.  

The other thing that sets VantageScore apart from its competitors is that it will score consumers that other credit score providers call "unscorable," says Davies. "Our model is able to use, let's say, very sparse information about a consumer and still calculate the score for them."

For example, if you just got your first credit card a few months ago, you may already have a VantageScore.  "A lot of other scores require at least six months of behavior to [develop a score]," says Davies. "VantageScore can score you in as little as a month."

VantageScore will also still give you a score even if the last time you used credit was a year ago. "Most scores require you to use credit within a six-month window," says Davies. VantageScore, in contrast, will look at up to two years of behavior to calculate a score.

This is important, says Davies, because it gives consumers with thinner files, such as recent graduates or people who rarely use credit, a chance to work within the system. Otherwise, "in order for a lender to work with you, they put you through a manual process which is more expensive, which is time consuming and, invariably, is a more complicated process," says Davies.

4. One person's negative mark may be scored differently than another person's.

If something out of your control, such as unemployment or medical debt, forces you to declare bankruptcy, your VantageScore will suffer. However, the damage may not be as bad as someone who has had a long history of managing credit badly, says Davies.

"One of the things we do in the model is we try to estimate who had to file for bankruptcy, but is a lower risk situation," she adds. Their score will be affected, "but because that was a one-time event, I'm going to assume they've actually been doing well with all their other debts and so I'm going to assume that they are going to recover much faster." 

By contrast, someone who has habitually missed payments and run up their credit cards probably won't see their score recover as quickly. "We're looking at their behavior in slightly different ways," says Davies. Consumers who have had a run of bad luck "should not be penalized in the way that someone who has been living on the edge," would be, adds Davies.

5. Your VantageScore is calculated using the same information as your other credit scores. It's just presented differently.

"Don't get too caught up in the number," says Experian's Rod Griffin. Your different credit scores are all based on the same information that's in your credit reports and that's what you should focus on.

"The most important thing to know about credit scores is while numbers tend to be very different, the risk factors tend to be very similar from one scoring model to another," says Griffin. "So if you address those risk factors, your credit scores will get better."

It's also important to remember that "your generic score is just that. It's not a score a lender would use," adds the Consumer Federation of America's Steve Brobeck. Generic scores that you can buy online, such as the VantageScore, are designed to give you a general idea of where you fall on the credit scale. However, they won't give you a perfect snapshot.

"The bottom line is what the lender is charging you," says Brobeck. "Different lenders will treat the same score differently," he adds. So, "in the final analysis, don't take your score too seriously."