FICO scores may get all the attention. However, VantageScores
are becoming more widely used by lenders, say experts.
Developed in 2006 by the three major credit bureaus, Experian,
TransUnion and Equifax, the scoring model -- which just recently
received a fresh makeover -- still struggles to catch
FICO
in popularity. FICO, which has been around since 1956, "is still
the most commonly used scale or scoring system," says Steve
Brobeck, executive vice president of the Consumer Federation of
America.
However, VantageScore "is slowly increasing in use," says
Brobeck, particularly with lenders outside the mortgage world,
where FICO dominates. "So if your score is from a credit card
issuer or even an auto loan, it might be based on the Vantage
scale," says Brobeck.
If you're thinking about purchasing your
VantageScore
from a credit reporting agency such as Experian or TransUnion -- or
if you know that a particular lender is using it -- here's what you
need to know:
1. The VantageScore you buy may be a different version than
the one your lender uses.
Since 2006, VantageScore has gone through multiple updates, two of
them substantial. As a result, lenders may access more than one
kind of VantageScore, and the version you buy to check how your
credit score is doing may not be the one your lender uses.
"It's not uncommon for scoring companies to develop new models
and updates to their models as the environment changes," says Rod
Griffin, director of public education at Experian. "I think it's
very important for consumers to understand there are many different
credit scores."
In 2010, for example, the company introduced the VantageScore
2.0, which is currently the score you get when you buy your
VantageScore from a credit bureau, such as TransUnion or
Experian.
VantageScore 2.0 was developed, in part, using recession-era
data that captured how people used credit just before the recession
began and what they did just after the economy tanked.
To take into account the new, more volatile economic landscape,
VantageScore began placing significantly more weight on recent
credit behavior, such as how many times in the past few months
you've applied for credit and how you've been doing lately with the
credit you already have.
For example, if you have a long history of paying your bills on
time, but recently lost your job and began to struggle, your
VantageScore 2.0 is likely to take a bigger hit than your other
credit scores.
2. There's a new VantageScore, and it weighs your credit
history differently.
In March 2013, VantageScore introduced an even more substantial
update to its existing score model: the VantageScore 3.0.
The latest version of your VantageScore lessens the emphasis on
recent credit history, says Sarah Davies, senior vice president of
product management at VantageScore. Overall payment history grew in
importance instead.
VantageScore's new version also includes more nontraditional
data, such as public records information. "We wanted to take
advantage of a broader, larger data environment at the credit
bureaus," says Davies.
In addition, different types of trade lines -- such as student
and auto loans, or first mortgages and home equity lines of credit
-- are now treated differently, says Davies. For example, "we now
look at student loans independently of other types of installment
loans," she says, because "student loans are much more risky than
auto loans."
The greater emphasis on what kinds of loans you're taking out is
designed to give lenders a closer, more intimate view of borrowers,
says Davies. "We put a bit more scrutiny on the data than I think
conventional scores."
3. You can tell which kind of VantageScore is being used
based on the scale that's used to score you.
If you recently purchased a copy of your VantageScore, you may have
noticed that it doesn't look like your other credit scores. That's
because the old VantageScore is different in that its scale is
different, says Griffin.
For example, if your lender is currently using VantageScore 2.0,
the lowest possible VantageScore is 501 while the highest possible
score is 990.
VantageScore 3.0, by contrast, uses the same scoring scale as
FICO, and ranges from 300 to 850.
Credit bureaus that sell VantageScores are considering making
the latest version of the score available to the public within the
next two to three months, says Davies.
So the VantageScore 3.0 may be the score you get if you buy one
in the near future. "We'll transition this summer and move to the
new version over time," says Experian's Griffin.
Lenders, however, will have to do their own cost-benefit
analysis, says VantageScore's Davies, and decide whether it's worth
switching to the latest model.
There's considerable interest in the new scoring model, says
Davies. "We launched [VantageScore] 3.0 on March 11," she says.
"And I think within about a week to two weeks, we've been contacted
by almost all of the top five lenders, having questions about
things, looking for information about it."
There's no telling, however, how many lenders will choose to
sign up -- or when they'll do it. So if you're denied credit or are
offered subpar terms on a loan and receive a free score as a
result, you may find that the score that was used to rank you is
still based on the older VantageScore scale.
"Lenders choose which scoring models work best for them," says
Griffin. "We hope that lenders will adopt and adapt to the new
version over time." However, "you won't see a wholesale switch," he
says. "It takes some time."
Until then, the difference in ranges between the contrasting
versions of your VantageScore -- and what factors are being scored
more heavily -- 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 other consumers'
scores on the same scale. "That's what's important," says the
Consumer Federation of America's Brobeck. "The relationship of your
score to other scores from that source."
VantageScore will also give you a list of risk factors, says
Experian's Griffin, that will help you better understand your
score. "Focus on the factors, not on the number," he says. "The
risk factors are what empower you to act." You can also visit
reasoncode.org
for a more complete explanation of the risk factors listed with
your score, he says.
4. Even if you have a thin credit file, you may still have
a VantageScore.
Another aspect that sets VantageScore apart from its competitors,
such as FICO's traditional scoring model, is that it will score
consumers whom 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 generate 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, time consuming and, invariably, a
more complicated process," says Davies.
VantageScore 3.0's fresh emphasis on nontraditional data also
helps calculate scores for a substantially larger number of
consumers, says Davies. "At this point, we're now scoring 27
million more consumers than conventional models," she says.
5. One person's negative mark may be scored differently
than another'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, people who have habitually missed payments and run
up their credit cards probably won't see their scores recover as
quickly from the credit score bankruptcy damage. "We're looking at
their behavior in slightly different ways," says Davies. Consumers
who have had a short run of bad luck "should not be penalized in
the way that someone who has been living on the edge" would be,
adds Davies.
If you're a victim of a natural disaster, your VantageScore 3.0
also won't punish you for any late payments you make as a
result.
In addition, if you pay off a collection account, the latest
version of VantageScore will forgive you for that, too. "If you
have paid off your debt that was placed at an collection agency, we
essentially ignore the fact that the debt was ever there," says
Davies.
6. Your actions matter more than your VantageScore
Regardless of what type of VantageScore you buy or receive from a
lender, the three-digit number that you see matters far less than
the way you use credit and handle your everyday bills, say
experts.
"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 you can buy
online, such as the VantageScore, 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.
See related:
9 credit score myths do more harm than good
The truth about 7 common credit report myths