How Your VantageScore Is Calculated

Credit scoring models have existed since the 1970s. Credit scores are beneficial to lending institutions, insurers, employers, landlords and government agencies. Fair Isaac & Co developed the first credit scoring model, FICO.

 

It was not until 2006 when Experian, TransUnion, and Equifax collaborated to establish a new type of scoring model, the VantageScore. The FICO score has some limitations though. One disadvantage is the criteria of computation. On the contrary, the VantageScore use a different calculation method from that of FICO.  In some instance, this method is more friendly and forgiving.
For decades, credit report agencies have used the FICO scoring model. The FICO computation method creates problems for both consumers and lenders.   One big change between the two, is how they handle medical collection accounts.  If the account is unpaid it will be factored into the credit score of both models.  But if the collection account is paid, the Vantage score doesn’t count it so it doesn’t have a negative effect on your Vantage score.

 

But the main purpose of designing the VantageScore was to provide a more standardized grading system compared to the one FICO uses.

How VantageScore is calculated

The computation method of VantageScore differs from that of FICO.

In the calculation of the Vantage credit score, the scoring model considers the following:
•    The amount of your recent credit (30%).
•    Your payment history (28%).
•    Your current credit utilization rate (23%).
•    The size of your account balances (9%).
•    The depth of your revolving credit (9%).
•    Your available credit (1%).

 

Now, the FICO scores use a different computation method. It considers:
•    Your payment history (35%).
•    Total amounts that owe in debts (30%).
•    The duration of your credit history (15%).
•    The type of credit you have used (10%).
•    The amount of your new credit (10%).

 

Also, the VantageScore uses a different quantification method compared to the FICO score.  The scoring model still uses a numerical scale.  In addition to this, for any given range, the model assigns a corresponding grade.

 

This grading system enables consumers to have a better understanding of their credit score.  The grading system uses a statistical ratio. In essence, the ratio considers the proportion of consumers with a possibility of receiving a charge off to that of consumers who will make timely payments.

 

Here is a break-down of the Vantage of the VantageScore system:
•    Grade A = 901 to 990 – 1 charge-off per 300 consumers.
•    Grade B = 801 to 900 – 1 charge-off per 50 consumers.
•    Grade C = 701 to 800 – 1 charge-off per 10 consumers.
•    Grade D = 601 to 700 – 1 charge-off per 5 consumers.
•    Grade F = 501 to 600 – 1 charge-offer per consumer.

 

Just like FICO, your credit worthiness will be determined by your score and grade. When computing your VantageScore, each credit bureau uses its own data. Thus, the scores can differ slightly because every credit report agency records consumer’s details differently.

Final word:

One major benefit of the VantageScore model is that it enables many consumers to have a credit score. It is estimated that the VantageScore assigns scores to millions of users who cannot be graded by the FICO system.

 

Another advantage is that a credit line has to be one month old only for it to be factored in your score. Still, the model considers your account history for the past 24 months. If you wish to rebuild your credit and show that you have made a significant progress over a span of time, VantageScore is a good option.

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