About the Vantagescore Credit Score

VantageScore is a new method of calculating a credit rating from an individual’s credit report, which was announced by the three major credit bureaus – Experian, Equifax, and Transunion – in 2006. It uses a new, more simplified scoring range and was designed for greater consistency and reliability.

Like the older Fair Isaac (FICO) method, VantageScore is a numerical score calculated based on a proprietary formula and using information contained in a person’s credit file. This information includes most debts as well as information regarding how those debts are paid off: whether they are paid off on time or, if not, how many late payments were made and how late those payments were. Credit cards, mortgages, car loans, lines of credit, and so on all appear in a credit file, and are reflected in the score. In addition, the score reflects very minor negative adjustments from recent applications for new credit (like filling out a credit card applications), and very large negative adjustments from serious events like bankruptcies.

According to Transunion, the VantageScore format has a score between 500 and 990, rather than the 300-850 range used in a FICO credit score. Within this range, the VantageScore system also applies a letter grade for simplified interpretation: 500-600 is an F, 600-700 is a D, 700-800 is a C, 800-900 is a B, and 900-990 is A. As with the FICO score, higher scores denote better credit: an individual with a VantageScore credit rating in the 900s essentially has perfect credit.

For the moment, the precise formula used in the VantageScore process is still proprietary. However, the largest component that goes into a person’s score (responsible for about one-third) is the extent to which they have made payments on time in the past. About one-quarter of the score then reflects their existing access to credit and their debt-to-credit ratio (how much they actually owe, versus how much they could loan through existing credit cards and lines of credit). Also taken into account are the current debt owing, the length of time you have had credit relationships, how many new credit inquiries have been recorded on the file as a result of applying for loans or credit cards, and how much existing credit could theoretically be accessed if you chose (for instance, the balance remaining on your credit card, up to your credit limit).

The three credit bureaus argue that the new VantageScore system was implemented to better aid creditors in getting more reliable results on people they may decide to loan money to. It produces, they say, more specific (and thus more useful) results for people on the lower end of the spectrum, and also penalizes people more heavily for not having a lengthy credit history. Cynics, on the other hand, suggest that the bureaus are merely trying to cut the Fair Isaac Corporation, which invented the FICO scoring system, out of the consumer credit business.

Whether a potential creditor, landlord, or employer is interpreting your credit reporting using the old FICO system or the new VantageScore system, it is in always in your interest to have the highest score possible. To be aware of potential warning signs in their credit file, and to correct potential errors or spot identity theft, all people are recommended to check their report on an annual basis. Americans can receive one free credit report per year through a website maintained by the major credit agencies, AnnualCreditReport.com.