The Frugal Creditnista

Vantage 4.0: How Vantage Affects Your Credit Score

If you closely monitor your credit score, you may already know that not all credit scoring models are created equal. Your credit “score” is actually many different scores, each of which is calculated based on the priorities of individual models. One of these models, the VantageScore, recently released some updates that may impact your credit score. 

Here’s a closer look at what these updates mean for you, now and in the future.

What is VantageScore?

In the past, the three main credit reporting bureaus relied on their own credit scoring models. This explains why your credit score might vary from one bureau to the next. 

VantageScore aims to provide more consistent reporting among the three credit bureaus. What’s more, it also seeks to help consumers better understand why certain activities may have raised or lowered their credit score by providing reason codes. 

All three major credit reporting bureaus —Experian, Equifax, and TransUnion — jointly developed the VantageScore to predict an individual’s likelihood of repaying borrowed funds.

Vantage Score 4.0 Update

VantageScore was first introduced in 2006 and has recently received its latest update. This new update is designed to ease the credit scoring process for consumers that have a limited credit history. 

As with previous iteration and other credit scoring models, VantageScore uses a scale of 300-850 to determine credit scores. The higher the score, the more “credit worthy” you are. A higher score could help you get favorable interest rates and gain approval for credit, while lower scores may have the opposite effect.

All credit scoring models receive periodic updates to attempt to increase their level of accuracy. While no system is perfect, tweaking and refining credit models can sometimes favor those who struggled with previous iterations. This new update from VantageScore is doing exactly this by making improvements to credit scoring for people with limited credit history.

Key Changes in VantageScore 4.0

One of the most notable changes to VantageScore 4.0 is the weight given to specific items in the credit score calculations. Here’s a brief breakdown:

  • Payment history 41%
  • Credit mix and age 20%
  • Credit utilization 20%
  • New credit accounts 11%
  • Balance of debts owed 6%
  • Available credit 2%

Compared to VantageScore 3.0, there’s now less emphasis on debt owed (down from 11%), available credit (down from 3%) and credit mix and age (down from 21%). There’s also a slight increase in the weight of payment history (41% compared to 40%), which can help those with limited credit history as long as they’ve made consistent payments.

Additional Benefits of VantageScore

VantageScore 4.0 has been touted as making it easier for individuals who are trying to build credit for the first time, even with a limited credit history. VantageScore will start building a profile starting from your very first month of credit activity. It also uses data from rent and utility bills and public records to contribute to your profile.

This means that individuals who were previously “unscorable” can now start to access credit with their VantageScore. For comparison, FICO only scores individuals that have at least a 6-month credit history.

Another benefit to borrowers is that VantageScore ignores some of the activities that may have lowered your credit score in the past.

For example, VantageScore does not take into account any paid collections or medical collection accounts that are less than six months old. For medical collection accounts that are greater than six months old, these are weighed less than other types of collection accounts.

Also, tax liens and judgments carry less impact than they used to, although they can still affect your credit score. 

Last but not least, VantageScore aims to use a predictive approach to credit scoring rather than looking at surface level behaviors. For example, if you tend to rack up credit card expenses around the holidays and then pay them off next month, your credit score won’t be unjustly influenced by a single month of activity. Or, if you’re paying more than the minimum on your car loan, your VantageScore will reward you for that more than if you were only making minimum payments. 

Who is Using VantageScore to Make Lending Decisions?

VantageScore 4.0 was officially released in 2017, giving creditors plenty of time to implement the model into their lending processes.

For the most part, VantageScore has infiltrated most of the credit industry with the exception of mortgage lenders. Financial institutions such as banks and credit unions may use VantageScore for auto loans and credit cards. Non-financial institutions, such as utility companies or retail stores, may also rely on VantageScore for credit check screenings, security deposits, or purchases on store credit programs. 

To date, the FICO scoring model is still the most widely used scoring model on the market, however, the VantageScore is definitely a close second.

How to View Your VantageScore

As with other types of credit scores and reports, you can view your VantageScore without it affecting your credit. This is considered a “soft” inquiry, compared to a “hard” inquiry when taking out a loan or applying for a credit card. 

To view your VantageScore, you can use free tools like Bank Rate, Credit Karma, or Credit Sesame. Some banking and credit services, including Chase, Capital One, and American Express, will also allow you to pull your VantageScore for free.

Keep in mind that even though all three credit bureaus participated in VantageScore’s development, your score may still vary from bureau to bureau. 

How to Improve Your VantageScore

As with improving any type of credit score, the best place to start is understanding why your score is what it is. If you have specific activities hurting your score, then you can focus on improving those things. 

For example, payment history makes up 41% of your VantageScore. If you miss a payment, there’s a good chance that your score will decrease. Making every payment on time would be the solution in this case. And to help you make payments on time, you might find ways to lower your monthly repayment if possible.

VantageScore 4.0 could work to your advantage once you understand how it works. Check out our new post comparing VantageScore with FICO. 

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