vantagescore3.0
vantagescore3.0

What does Vantagescore 3.0 mean?

Posted on

Here we are going to explain what is Vantagescore 3.0? How does Vantagescore works? How to calculate the Vantagescore 3.o scoring system ?The following are the guidelines about Vantagescore 3.0.The Vantagescore is a consumer credit scoring model that was developed as a joint venture between Equifax, Experian, and TransUnion. Vantagescore Solutions, LLC, an independent company founded in 2006 that is jointly owned by all three companies, manages and maintains the model. Financial institutions, banks, and lenders use this model to determine if people are eligible to receive credit.

Vantagescore models compete with FICO credit score models produced by Fair Isaac Corp. Both FICO and Vantagescore utilize data stored in consumer credit files maintained by the three national credit bureaus. FICO and Value Score models use statistical analysis of that data to predict the likelihood of a consumer defaulting on a loan. The VantageScore and FICO models represent the risk of a loan default as three-digit scores, with higher scores indicating a lower risk. VantageScore and FICO use different proprietary analytical methods, so scores from one system cannot be translated into another.

What are the components of a VantageScore?

  • History of payments: Indicates whether a consumer pays their bills on time or not
  • Depth of credit: This refers to a consumer’s credit history and the type of accounts they have opened.
  • Balance: Total of all outstanding loans.
  •  Recent credit: Includes the number of inquiries made by the consumer.
  • Availability and utilization of credit: Included is the total amount of revolving credit a consumer has used. As an example, if someone has $9,000 of credit and has used $6,600 of it, their credit utilization would be 60%.

Keep Reading: How to build credit from scratch in the United States

How does VantageScore work?

Payment history and credit utilization are of primary importance to VantageScore, whose statistical analyses are based on a combination of all three national credit bureaus. Models then perform a statistical analysis of the data in order to predict how likely a consumer is to repay a loan.

In the form of scores, the VantageScore model represents the risk of negligence in repaying a loan. A higher score indicates less risk of failure to meet a payment.

The VantageScore will produce a score that varies depending on which version of the model is used to produce the score.

So what is FICO Score?

Many people associate credit scores with FICO, and for good reason. Although there are many credit scoring models, VantageScore® is the other leading model.

In 1989, Fair Isaac Corporation (formerly Fair, Isaac and Company) introduced the first general-purpose credit score, and FICO® Credit Scores have been used in a wide range of lending decisions since then. You won’t only see FICO® Scores, however. Another major scoring model is VantageScore®, whose third version, VantageScore 3.0, is widely used today.

 what is VantageScore 3.0?

Many people wonder what VantageScore is? To answer that question, let’s back up a bit.

It all started in 2006, when the three major consumer credit reporting agencies – Experian, TransUnion and Equifax – came together to create the first iteration of the VantageScore® credit scoring model.

A number of versions of VantageScore were released before VantageScore 3.0 debuted in 2013. The new model was so successful that more than 6 billion VantageScore® credit scores influenced lending decisions in the 12-month period from July 2016 to June 2017, according to a research study by consulting firm Oliver Wyman.

VantageScore 4.0, the latest version of the VantageScore® model, debuted in 2017, but many lenders still use VantageScore 3.0.

Therefore, let’s look at some of the basic information you should know about VantageScore 3.0 and how it differs from other credit scoring models.

VantageScore 3.0 Scoring System

credit scoreRatingPercentageEffect
300-499Very bad5%Credit may not be approved.
500-600Bad21%The applicant may be approved for some credit, but rates are likely to be unfavourable and conditions may include larger down payments.
601-660Acceptable13%Credit may be granted, but probably not at a competitive rate.
661-780Okay38%Applicants are likely to be approved for credit at competitive interest rates.
781-850Excellent23%Applicants are more likely to receive favourable credit terms and rates.

VantageScore 3.0 vs Other Scoring Models

Credit factorVantageScore 3.0VantageScore 4.0FICO® Score 8FICO® Score 9
Utilization rateVery importantEqually importantVery importantVery important
Historical utilization rate and payment information (trend data)does not impactIt can affect your scoredoes not impactdoes not impact
Collection accountsIgnores paid collection accountsDismisses paid collection accounts

Ignores medical collection accounts that are less than six months old
Weighs unpaid medical collection accounts less than other types of collection accounts

Accounts with an original balance of less than $100 are ignored as low-value “nuisance” accounts

Medical collection accounts, including those with a zero balance, should be treated like other collection accounts

(Ignores paid collections)

Weights unpaid medical bills less than other types of collections

A tax lien or judgmentCan have a significant impactAlthough they have less importance than they used to, they can still have an impactCan have a significant impactCan have a significant impact

How is VantageScore 3.0 calculated?

An Vantagescore 3.0 credit score is between 300 and 850 points. Previous versions of the VantageScore® model operated at a different range, but VantageScore 3.0 uses the 300 to 850 range – the same range as most FICO® Scores – to make it easier for lenders to use.

VantageScore provides some insight into how various credit factors are used to calculate a VantageScore 3.0 rating, despite the fact that credit scores are based on a complex series of calculations.

Following is a general breakdown of the categories.

Payment history (approximately 40%)

Payment history is the most important factor in your VantageScore 3.0 credit score. In other words, do you pay your bills on time consistently, or are you frequently delinquent on your payments?

Generally, payment history is portrayed as a percentage showing how frequently you have made on-time payments. As a result of the importance of this factor, missed or late payments can significantly damage your credit score.

Credit type and age (around 21%)

With VantageScore 3.0, you can also see how long you’ve had different types of credit accounts open. Please note that it does not refer to your actual age.

Lenders prefer to establish long-term credit lines. It’s an advantage to have a variety of account types – as long as you keep up with your payments – since lenders look for evidence that you have responsibly used a variety of accounts on your credit.

Credit utilization rate (about 20%)

Credit scores are used by lenders to gain a better understanding of the type of borrower you are. VantageScore 3.0 is negatively impacted if you consistently use a large percentage of your available credit at any given time. Most experts recommend using credit less than 30% of the time.

Balances (about 11%)

The total amount of your recent credit account balances, both current and delinquent, is this factor.

Low balances on your other credit accounts are generally liked by lenders, as they suggest that you are more likely to make monthly payments on time. Paying your balances monthly is the best method.

Recent credit (around 5%)

Recently, did you apply for a new credit card? Have you requested a personal loan? Lenders may be interested in this information, since recent credit activity, such as newly opened credit accounts and credit inquiries, can be a good indicator of future financial performance.

Credit available (about 3%)

Lenders generally like to see that you are only borrowing the credit you need, although this is not a very important factor. VantageScore® Solutions found that top consumers have unused credit of between $20,000 and $22,000.

Keep Reading: How to build your Business Credit

How does VantageScore 3.0 compare with FICO®?

VantageScore® and FICO® credit scoring models share many similarities. In addition to being calculated on a scale of 300 to 850 points (the latest FICO® Scores can reach up to 950), both models place a lot of emphasis on payment history and credit utilization.

Here’s how FICO calculates your credit score based on various factors. The names of some of these factors may be slightly different, but they refer to similar information on your credit reports.

  • The payment history is 35%
  • The amount owed is 30%
  • The length of the credit history is 15%
  • The new credit is 10%
  • Other factors, such as the type of credit used 10%

While much of the information is similar, one major difference may be in the way VantageScore and FICO evaluate data for the purpose of generating scores, particularly for people without much credit history.

There’s a good chance you don’t have a FICO® Score if you have little credit history. To establish a score, FICO requires at least six months of account data reported to a credit bureau within the last six months.

On the other hand, VantageScore may be able to provide a credit score for more people based on just one month of history on at least one account reporting within the previous 24 months.

Is there a collection account on your credit report? The VantageScore might be more forgiving of your situation. When a collection account has been paid in full, VantageScore 3.0 ignores it. (FICO® 9 ignores accounts that have been paid in full.)

What’s New in VantageScore 3.0?

VantageScore 3.0 stands out in comparison to previous VantageScore models and other credit scores because:

  • Changed the Score Range: VantageScore 2.0 ranges from 501 to 990. Version 3.0 adopted the standard 300 to 850 credit score scale, making things a lot less confusing for consumers.
  • Works for Millions More People: According to the company, its new model can generate a score for up to 35 million more people than a conventional model. Because it uses more expansive credit data and improved analytics to evaluate people:
    • Credit history less than 6 months
    • No open credit cards or loans
    • Activity older than 24 months
    • Only credit card and loan activity from the past six to 24 months.
  • Neglects paid collection accounts: Collection accounts take seven years to disappear from your credit report. The accounts will not be included in VantageScore 3.0 calculations if the amount is paid. Depending on the rest of your credit history, that can improve your credit score.
  • Penalizes Late Payments Differently: Late mortgage payments will not affect your credit score more than late credit card or auto loan payments will.
  • Protecting Your Credit From Natural Disasters: In the case of late payments and other negative records caused by a hurricane, earthquake, tornado, etc., VantageScore 3.0 will ignore them. All you have to do is ask (and perhaps provide some documentation).

Keep Reading: 6 Simple steps to apply for a New Credit Card

How does VantageScore 3.0 differ from VantageScore 4.0?

VantageScore Solutions has adjusted its credit scoring model over time to reflect consumer credit profiles better.

A new version of Vantagescore credit scoring model was released in 2017: VantageScore 4.0. Several changes have been made to the model that may impact your score.

A summary of some of the key changes in VantageScore 4.0 follows:

Trends in credit data

Historically, credit scores have been able to take a snapshot of your credit reports based on how they appear over a specific period of time. VantageScore Solutions claims that VantageScore 4.0 is the first and only credit scoring model to incorporate trended data from the three major consumer credit agencies, meaning it could provide a deeper, more accurate picture of your borrowing and payment habits.

A consumer may accumulate debt around the holidays and then purchase a new car in January, says Jeff Richardson, vice president of marketing and communications with VantageScore® Solutions. That consumer might appear to be a high-risk borrower in the short term. VantageScore 4.0 proposes to look back over a longer historical period, which might show a different picture. The end result might be a more complete picture of a borrower.

A tax lien, judgment and medical collection account might not have the same impact

TransUnion, Equifax, and Experian adopted new rules in July 2017 regarding collecting and reporting consumers’ tax liens and civil judgments. Due to that change, VantageScore 4.0 doesn’t rely as heavily on tax liens and civil judgments as some previous scoring models.

Consumers with more credit scores

The new Vantagescore 4.0 could be welcome news for consumers whose credit histories are thin or non-existent. According to the company, the model utilizes “machine learning techniques” to better develop scorecards for consumers who haven’t updated their credit files in the previous six months.

As a result, VantageScore hopes to more accurately score 30–35 million consumers overlooked by traditional scoring models.

Conclusion

VantageScore 3.0 introduced a new dimension to the credit scoring model in 2013. A successor to VantageScore, VantageScore 4.0, also aims to better understand consumer credit.

According to Richardson, VantageScore Solutions strives to offer three key elements with each iteration of its scoring model: greater accuracy, greater range, and more consistency.

Answering the question What is VantageScore 3.0? Is now complete. I hope we have provided you with what you were looking for. Now you know a lot more about credit scoring. Take care of your credit, raise your score, and you will be able to receive the credit you request under very favourable conditions. Knowing your score is knowing your opportunities.

If you still have a doubt please comment us !