What VantageScores are, how they work

Newly updated, rival to FICO takes 'thin file' data into account

By Kelly Dilworth

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.

Components of a VantageScore

(Click image to enlarge) Infographic courtesy of VantageScore.

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.

Updated: April 23, 2013

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