What you should know about the VantageScore 3.0 credit scoring model
Find out how your VantageScore 3.0 is calculated and how you can improve it.
Credit scores are an essential component of your financial life. Your credit score is a numerical representation of your creditworthiness, which is used by lenders and other financial institutions to assess your ability to repay a loan or credit card balance. True Finance has partnered with Equifax to provide users their Vantage Score for free.
What is Vantage Score 3.0?
Vantage Score 3.0 is a credit scoring model that was introduced in 2013 by the three major credit reporting agencies, Experian, TransUnion, and Equifax.
Vantage Score 3.0 is a credit scoring model that uses advanced algorithms and statistical methods to evaluate credit risk. It considers a wide range of factors when calculating a credit score, including payment history, credit utilization, length of credit history, types of credit, and recent credit behavior. Vantage Score 3.0 is designed to provide a more accurate and reliable assessment of credit risk than earlier scoring models.
What is a Good FICO Score?
Credit scores range from 300 to 850, but the score you’ll need to get approved for a loan or credit card will depend on the specific lender you're dealing with. In general, though, a good score is one that falls between 670 and 739, and the average score in the U.S. is 698. That said, some lenders require even higher scores, and the most competitive interest rates are typically reserved for those with a very good (740 to 799) or exceptional (800+) score.
How is Vantage Score 3.0 calculated?
Vantage Score 3.0 is calculated using a range of data from your credit report. The score is based on the following factors:
1. Payment History (32%): Your payment history is one of the most significant factors that determine your credit score. It considers how often you make payments on time, any missed payments, and how recently you missed them.
2. Credit Utilization (23%): Your credit utilization ratio is the amount of credit you're using compared to the amount of credit available to you. It's calculated by dividing your total credit balances by your total credit limits.
3. Length of Credit History (15%): The length of your credit history also plays a role in your credit score. The longer your credit history, the more reliable you are as a borrower.
4. Types of Credit (10%): The types of credit you have, such as credit cards, car loans, or mortgages, also impact your credit score.
5. Recent Credit Behavior (10%): Recent credit behavior is also taken into account. This includes new credit accounts, recent inquiries, and any negative marks such as delinquencies, bankruptcies, and collections.
6. Available Credit (7%): Your available credit is the amount of credit that you have available to use. A high amount of available credit can positively affect your credit score.
What's new with Vantage Score 3.0?
Vantage Score 3.0 has several features that make it different from earlier scoring models. One of the most significant changes is the incorporation of trended credit data. This means that the model considers how your credit behavior has changed over time, rather than just looking at your current credit balances. For example, if you've been paying down your credit card balances over time, this will be reflected in your credit score.
Another notable change is that Vantage Score 3.0 places more emphasis on the credit utilization ratio than previous models. This is because a high credit utilization ratio is often an indicator of financial stress, and borrowers with high credit utilization ratios are more likely to default on their loans.
If you’re planning to purchase a home, make an effort to avoid unnecessary credit inquiries for at least one year before submitting your mortgage application—two years is ideal. Likewise, if you’re trying to improve your credit score, avoid applying for new credit cards and other loans for as long as possible.
Final Thoughts and Offers
Depending on the circumstances, applying for a credit card, mortgage, or other loan can be nerve-racking. Luckily, if you understand the factors, you can take steps to improve your score before a lender runs a credit check.