Takeaways
- VantageScore is one of the most widely used credit scoring models and helps lenders determine your creditworthiness.
- A high credit score decreases borrowing costs, saving you thousands of dollars.
- The highest VantageScore cohort is called Super Prime.
- Paying your bills on time and length of credit are the two most crucial factors in determining your VantageScores 3.0.
- VantageScore makes multiple credit scores for specific industry loans, such as car loans.
What is a Credit Score?
A credit score is a three-digit number between 300-850 assigned to consumers by credit scoring companies like FICO or VantageScore. Your credit score predicts your ability to repay a lender for a new loan and is a snapshot of your financial history and creditworthiness. Credit scores fluctuate based on consumer behavior.
Why do you need a credit score? If you are applying for a new credit card, mortgage, auto loan, or personal loan, lenders need a way to assess if you will pay the loan. A credit score helps lenders examine your eligibility for credit products. What products you qualify for affects your credit terms, such as interest rate, credit card benefits, and other loan covenants (secured or unsecured debt).
Smart Money -> Deep Dive: What is a Credit Score?
What is a VantageScore?
The VantageScore® credit score is a three-digit number that assesses your ability to repay debt. Your level of financial responsibility weighs heavily on your credit score. The VantageScore is a credit scoring model, much like the FICO credit score.
VantageScore was introduced in 2006 by the three credit bureaus (Equifax, Experian, and TransUnion) to compete with the FICO credit score. When you apply for a new line of credit, the lender pulls your credit score to determine their willingness to lend capital. A high VantageScore tells lenders you have high creditworthiness, while a lower score indicates you might not pay your loan. Getting a high credit score is a smart money move.
What is a Good VantageScore?
The VantageScore scale is from 300-850. With the introduction of the newer VantageScore 3.0, lenders can now readily compare consumers on the same scale with their VantageScore and FICO scores. Although the scales vary slightly, VantageScore uses the below score ranges to classify consumers:
- Super Prime – 781–850
- Prime – 661–780
- Near Prime – 601–660
- Subprime – 300–600
Prime borrowers are what lenders want because they are the most financially responsible cohort, while subprime borrowers make on-time payments and ultimately pay off their debts. Near the top are Super prime borrowers, who are also considered on the higher end of borrowers and can usually receive loans easily.
If you are in the Near Prime or Subprime cohorts, you probably have a short credit history or are working on rebuilding your credit. Consumers in these categories have trouble paying their bills on time and take out too much debt. Subprime borrowers can be denied credit cards or loans.
Smart Money -> Is an 800 Credit Score High Enough?
Smart Tip:
Check your credit score regularly to maintain visibility on your progression ahead of any sizable financial decisions like buying your first home, purchasing a car, or getting a personal loan. Focus on improving your credit score quickly because a good credit score could save you thousands of dollars in interest payments.
What is the Average VantageScore?
At the end of 2022, the average national VantageScore® credit score was 696. This falls on the lower end of the Prime cohort. Inflation pressures and an inability to earn more income make paying off credit cards and loans more difficult.
Financial planning can help you budget properly to increase your credit score. To get a high credit score, focus on paying your bills on time and decreasing credit utilization. This means properly planning to ensure you have savings and checking accounts to make smart money decisions.
Are There Multiple VantageScores?
You do have more than one VantageScore. You have one VantageScore with each credit bureau – Equifax, Experian, and TransUnion. Theoretically, they should all be the same, but because lenders don’t always report information to all three credit bureaus, they may each have different information and scores.
VantageScore also has different types of scores. For example, you have both a VantageScore 3.0 and VantageScore 4.0, which make assessments of your ability to repay debt based on several mathematical models.
Components of a VantageScore
There are multiple components of your VantageScore. Here are six to focus on:
1. Payment History (41%)
Pay your bills on time. The bulk of your FICO and VantageScore consider your ability to make on-time payments. If you have late payments, this can erode your credit score quickly. How long your payments have been delinquent also factors into the equation.
2. Depth of Credit (20%):
Length of Credit: How long you have had open credit accounts matters. Depth of Credit looks at your most recent credit account, your oldest credit account, and the average length of your credit. The older your average credit accounts the better for your credit score because lenders want a borrower with a proven track record of debt repayments. Even if you have an old unused credit card, it can help your credit score to keep this account open.
Credit Diversity: Your diversity of credit mix also contributes to your VantageScore. A broader portfolio is more helpful to see consistent credit behaviors. Here are the two major types of credit:
- Installment: Installment debts have consistent and predictable monthly payments. They are typically associated with larger purchases like mortgages, car loans, or personal loans.
- Revolving: Revolving lines of debt have a credit ceiling. Your debts change based on how much you draw down. Credit cards are the most common type of revolving credit line in personal finance.
3. Credit Utilization (20%):
Credit Utilization is the amount of available credit you use. A credit utilization between 1%-30% is considered a healthy range. Anything above 30% is considered higher risk because lenders believe you are overindulging in debt. High credit utilization can increase repayment risk.
4. Recent Credit Applications (11%)
VantageScore looks at the number of hard inquiries on your credit report. Shopping for the best credit card before you begin the process of formally applying to credit lines is a smart money decision. You want to make every application count. A series of hard inquiries can cause your credit score to dip. VantageScore considers all hard inquiries in 14 days one inquiry.
5. Total Debt (6%):
High balances on your credit card or installment loans can hurt your credit score. Even with a solid history of on-time payments, lenders don’t like to see your balances get too high. It is important to budget appropriately and don’t over-skew your total credit balance.
6. Available Credit (2%)
The final factor in determining your VantageScore is your total credit limit, which is the sum of all lines of credit, revolving or installment. You can increase your credit limit with credit card companies by simply asking. If you have a high credit score, this might be an area to focus on if you are trying to fight for the last couple of Super Prime points.
Smart Tip:
Late payments can stay on your credit report for seven years, negatively impacting your credit score. Paying your bills on time and paying off old unpaid bills will boost your credit score.
Smart Summary
Managing your credit score is an essential part of your overall financial health. Your VantageScore and FICO credit scores give lenders a summary of your creditworthiness. Ensure you actively monitor your credit score, aim for a great credit score, and reap all the rewards of amazing credit card benefits and lower interest rates. Be smart with your money moves and save thousands of dollars.
