A number of scoring algorithms, including VantageScore, analyse the data in your credit reports and produce a score that expresses the chance that you will pay your debts on time. Your VantageScore may have appeared on your credit card bill or educational websites. Between July 2016 and July 2017, more than 1 billion VantageScore credit scores were directly given to consumers, claims VantageScore Solutions.
Consumer credit scoring business VantageScore Solutions LLC is situated in Stamford, Connecticut. The three main consumer credit reporting agencies, Equifax, Transunion, and Experian, the site’s publisher, jointly own the business, which was founded in 2006.
The VantageScore Credit Model: How Does It Operate?
Before credit scores were invented, a lender would have to look through a borrower’s credit history and assess each application’s chances of repaying a loan on their own. This required a great amount of training and talent in addition to a lot of time.Credit scores streamline this process by summarizing a person’s entire credit history to a single number, and therefore lenders are able to automate a portion of the process of approving a loan while ensuring a consistent, objective formula is always being used to make these decisions.
A Good VantageScore Is…
Scores between 700 and 749 are regarded as good, while those between 750 and 850 are deemed exceptional or super prime. Scores between 650 and 699 are considered fair, between 550 and 649 are considered bad, and between 300 and 549 are considered extremely poor.
VantageScore has released four credit score models since it was founded. Versions 1.0 and 2.0 used a scale from 501 to 900, which was equivalent to the letter grades A through F. However, the 300 to 850 range was adopted by the VantageScore 3.0 model, which was unveiled in 2013. The range of 300 to 850 is also used in VantageScore 4.0, which was released in April 2017.
The VantageScore formulae have always used information from your credit history, such as payment history, average number of days an account has been open, credit kinds, credit utilisation, and most recent credit queries. However, trend data, which examines trends of behaviour rather than just a snapshot in time, is another notion used in VantageScore 4.0. On their credit score, for instance, individuals may benefit when they gradually pay off their debt.
When computing your VantageScore, the calculations do not take into account medical debt that is in collections, whether it has been paid in whole or not.
Note that none of the three credit reporting agencies—Experian, Equifax, and TransUnion—will record unpaid medical debt accounts that are less than $500 for a year. Medical collection accounts that have been paid won’t show up on your credit reports.
The Variability of Your VantageScore
Your VantageScore credit score is based on your credit records, just like any other credit score. Your creditors provide information to the three main consumer credit bureaus, such as whether you are paying your bills on schedule. But since not all financial institutions submit data to all three credit reporting agencies, the information at each one may change slightly. It’s also likely that certain providers of credit scores are utilising a different version of the VantageScore methodology since there are four of them.
Finally, the information in your credit report will have a significant impact on the score that is calculated. For instance, if you recently paid off a sizable obligation, it might not appear on your credit report until the following billing cycle. Only after that will your most recent account balance be used to create VantageScore or any other credit scoring model.
To sum up
An essential component of getting a loan is understanding credit ratings and the models used to calculate them. You’ll be more prepared to work to build the best possible credit score if you know what VantageScore is and how it operates.
Experian, TransUnion, and Equifax, three of the major national credit reporting agencies, developed VantageScore 4.0, a user-friendly credit score model with scores ranging from 300 to 850. Some lenders employ VantageScore 4.0, but not all of them. Higher scores indicate a higher possibility that you will repay your bills, which reduces your credit risk in the eyes of lenders. Lenders can tell that you might be a bigger credit risk if your score is lower.
Your credit file, which is kept up to date by Experian, TransUnion, and Equifax, three distinct major credit reporting companies, contains information about your credit history. The data in your credit file at the time it is requested serves as the basis for credit ratings. Because some lenders only submit your credit history to one or two of the agencies, your credit file information may differ from one agency to the next. Therefore, if the data they have on file for you is different, your credit scores may change. Your credit scores may vary daily since the data in your file is subject to change over time. The credit risk (risk of default) for the same customer can be assessed differently by different credit scoring models.
Lenders and insurers may choose from a variety of credit rating schemes. Don’t be shocked if your lender assigns you a score that differs from your VantageScore because they might not use VantageScore 4.0. (And your VantageScore 4.0 may differ from your score under other sorts of VantageScores). Just keep in mind that even though the number is different, your related risk level is frequently the same. However, the risk rating provided by VantageScore 4.0 for some customers may differ, sometimes significantly, from the score provided by a lender. It’s likely that if the lender’s score is lower than your VantageScore 4.0, it will result in higher interest rates and occasionally credit denial.