New Credit VantageScore Scale Explained
Many people wish to know whether they can get a FICO score over 850? Well the answer is that they can not, they probably have seen a VantageScore rate of 900 and thought it was a FICO score. In this short review we will try and explain VantageScore range so people could understand it better and know how it is calculated.
Simple VantageScore explanation is that the score range is between 501-990, which allows a better accurate prediction and risk management for the banks and lending companies.
Why Use A Different Credit Score
The three credit reporting companies (CRC) Equifax, Experian and TransUnion joined together and developed a new kind of credit scoring to help them evaluate the credit reports and produce a better accurate creditworthiness prediction based on known factors.
Before VantageScore was established there was a great diversity between the three CRCs, they used different scoring methodologies which developed different scores for each consumer. The different scores reported using the FICO algorithm were caused because different factors of the FICO algorithm was used with different methodology, and because there are different elements being reported individually to the credit reporting companies.
The VantageScore was developed by financial and mathematical experts from all three reporting companies, together with a huge ‘sample’ of 15 million anonymous credit users files. The original VantageScore range was released at March 2006 to the financial markets. A newer Vantage Score model called Vantage Score 2.0 is now present.
VantageScore Advantages Explained
The VantageScore grading is softer than the harsh FICO score, the VantageScore scale takes less emphasis on credit history than the FICO Score scale. This means that consumers who would be low graded by the FICO score have better chances to be upgraded by the new scale by Vantage Score.
Some customer types have a bad credit score, and would not be able to qualify for a mortgage because their score will be lower than the minimum credit score needed by most lenders. These people would need to qualify for the FHA Home Mortgage Plans for those with bad credit.
Within these customer who get abused by the FICO algorithm would be: young people just after collage without a steady financial background; divorced or widowed who never had active credit reports; people who immigrated and have no ‘credit history’ to show; people who are not credit users by ideology. All these will get a unbalanced low FICO score.
What Is VantageScore 2.0 ?
The simple VantageScore 2.0 explanation is that the credit markets for2015 are not what they where back at 2006/7. The violent financial crisis which hit the lenders and the financial institutions like a Tsunami, wrecked everything lenders and borrowers worked for years. This drastic changes had to be blended to the credit score algorithm.
The VantageScore 2.0 uniqueness is that it benchmarked two different time-frames, to evaluate better understanding of credit behaviors, before and after the sub-prime crisis erupted. Using a two time-frames for comparison allows a better score, because it lowers the algorithm sensitivity to a single financial event.
VantageScore Algorithm Factors Explained
Like the better known FICO Score (by Fair Isaac) the VantageScore has a diversity of factors the algorithm calculates, here you can see the factors and how much they contribute to the overall rate. The percentage may change slightly but the emphasis on recent credit behaviors stays the same:
30% – Recent Credit – Number of recently opened credit accounts and credit inquiries. Applying recently for many accounts makes you a risky borrower. (In the FICO score Credit Inquiries is 10%).
28% – Payment History – Repayment behavior, There is a difference between someone who tried hard to be current and failed and cooperates with the lender and someone who has a disrespectful attitude when approached. Borrowers who are few days late every month or late once by 30 days. The VantageScore takes into account those risk behavior factors too. (In the FICO Scale Payment History is 35% of the score).
23% – Utilization – Credit utilization means how much of your credit you are using from your credit limits. A person who has a high Debt-to-Credit ratio is riskier than a person using a small fraction of available credit. (In the FICO score Credit Utilization is 30%).
9% – Balance – How much money are you owing lenders and credit companies at any given month. Balance calculated is both current and delinquent. A recent rise in the balance is a credit risk indicator.
9% – Depth of Credit – How deep (long) is the credit history, are you a new credit user or an experienced credit customer. Different kinds of credits are calculated like revolving accounts and installment loans. (In the FICO Score scale it is 15%)
1% – Available Credit – How much of credit is available for you.
As you can see the Vantage Score places less emphasis on the depth of the credit history, and more emphasis on the recent credit accounts. This takes less weight from credit behaviors prior to the 2008 crisis and places more wight for your current credit behaviors.
By this the Vantage algorithm tries to be more accurate and relevant ‘risk predictor’ than the FICO score. Lenders at 2015 will learn more about your real financial creditworthiness with Vantage Score than with the FICO score.
The VantageScore Letter Indicators Explained
The VantageScore ranges from 501 to 990. Within this range there are five groups levels A-B-C-D-E-F, the letters are part of the Vantage segmentation predicting the risk assessment. The letters help people and organizations clearly see the score in a familiar grading. Instead of thinking how good (or bad) is 735 the ‘C’ score places it at the appropriate position.
- 501-600 – Gets the ‘F’ grade.
- 601 to 700 is a D grade.
- 701 to 800 is a C.
- 801 to 900 is a B.
- 901 to 990 is an A. .
Vantage Score Model Conclusion
The VantageScore has not yet been fully adopted by all financial organizations and lenders, mostly because it requires them to change their statistical and software databases. Most mortgage lenders will request a FICO score rather than a Vantage Score.
Since the VantageScore 2.0 release more and more lenders begin to use the Vantage score gradings and segmentations, since this segmentation compares behaviors on two time-frames and is apparently better to predict foreclosure risks than the former FICO score.
This ‘Vantage Credit Score explained’ review is for general information, please use professional counseling before major financial decisions.
So What is The Next Step?
If you will do nothing.. don’t expect anything to happen.
Every week you are wasting money.. sending dozens of dollars to the rich credit companies, who relay on you to keep doing NOTHING.
If your score is below 700, you might want to do something about it – get this ‘Credit Repair University’ which will save you money and time.
Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..
You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket.
So do your math… and take action NOW.