As you have probably heard by now, the credit bureaus have designed and released their own scoring model called the Vantage Score.
While we believe that most lenders still use FICO scores, more and more are beginning to use the Vantage Score which means that you need be aware of what the differences are between the two scores, and how these differences can affect your credit.
Some credit industry experts believe that the bureaus are destined to "win" the credit scoring turf battle. Whether they do it with the Vantage score or not, only time will tell. In the mean time it’s important to be educated about both scores and how they compare.
The first and perhaps the most obvious difference between the FICO and Vantage scores is that the scoring ranges are considerably different.
A FICO score ranges from 300 to 850, and tends to vary some from bureau to bureau.
FICO scores tend to have a "momentum" affect on each end of the credit spectrum. In other words, once you start building credit and improving your score, it gets easier to build more credit and further improve your score. (Think of it as if "you have to have credit to get credit", but once you do have it, the effect snowballs and it becomes easier to get more.) The higher your score gets, the less impact minor negative marks (such as inquiries) have and the MORE impact certain positive accounts seem to have. This means that the higher your credit score gets, the easier it is (in theory) to keep it high.
On the flip side, the lower your FICO score is, the more negative marks seem to hurt. Things like inquiries seem to have a bigger negative impact when your score is low to begin with. This means that once your score is low, continued negative activity will insure that it stays that way. The same snowball effect can occur, making any negative marks especially harmful to scores in the low-to-mid ranges.
The Vantage score range is from 501 to 990. The bureaus have taken a number of steps to make the Vantage score more attractive to lenders.
Most of the details are technical lingo that’s difficult to cover in a few words.
One key is that they have taken special steps that, according to VantageScore.com, will reduce the score variations that typically occur between bureaus. This is in part because the score was built using a profile of data from across the three bureaus, and through what they refer to as "characteristic leveling", the bureaus have essentially analyzed a broad sampling of data from multiple sources and used that to create an algorithm to interpret that varying data in a (hopefully) consistent manner.
In other words, they used the fact that they own the data to their advantage, and have designed a way to analyze their data that only they (the owners of the data) are capable of. What does that mean to you and I? If their predictions are correct, it means that there will be less variation in scores between bureaus when using the Vantage score.
Judging from information on the Vantage Score website, when compared to the FICO score the Vantage score may be a little less top-heavy (meaning the snowball effect may be diminished somewhat.) This approximation is based on the statistics showing the number of consumers in each credit score range (sub prime, near prime, prime, super prime) on VantageScore.com.
According to myfico.com, a FICO score is made up of approximately the following:
According to VantageScore.com, the makeup for the Vantage Score is:
Comparing these breakdowns, it’s easy to see that the Vantage Score seems to be more complicated.
It’s interesting that the "recent credit" category with the Vantage score accounts for 30%, while FICO indicates recent credit search is only 10% of the score makeup.
With the Vantage score both inquiries and newly opened accounts are included in that 30%. It is well known that several newly opened accounts can hurt a FICO score at first (before they eventually help), and the 30% number seems to indicate the same will be true of the Vantage score, but perhaps to a greater degree.
The lower percentage for the Vantage score under "Credit Utilization" may mean the positive effects of methods dealing with the debt to credit ratio could be diminished slightly with the Vantage score.
The FICO scoring model uses what is called "scorecards" to score consumers in relation to the performance of others in their same category.
For example, if a consumer has a bankruptcy on their credit report they will be scored with regards to how they perform compared to their peers (others who have bankruptcies on their credit reports).
If a person takes good care of their credit and opens new positive accounts after a bankruptcy, this "scorecard" affect can cause their credit to go up substantially, because they will be doing substantially better than other consumers in the same category.
If someone has more trouble after the bankruptcy, their credit score will drop even further and it will become even harder for them to dig out.
The Vantage score uses scorecards too, and the scorecards will likely have a similar effect on the scoring behavior. There is also a bankruptcy scorecard for Vantage scores, and the effects will probably be similar.
While the scorecards are different between the two scoring systems, they are likely to have similar effects because the "scorecard" system is designed to create that exact effect. It looks at people in a certain category, determines how the "best" behave, determines how the "worst" behave, and then tries to figure out which group you fit into.
According to sources, the FICO score takes authorized user accounts into account if they are "legitimate". This means they try to rule out purchased authorized user accounts (aka "seasoned trade lines") that were popular a few years back.
As of right now it appears that the Vantage score does not and will NOT take authorized user accounts into consideration in scoring at all. This means if you aren’t the primary user on an account, then that account will not be considered in calculating your credit score.
As you can probably guess, the list of differences between the FICO score and the Vantage score is long and technical. Since the scoring models are proprietary and closed, we can only really guess as to what many of those differences are. We can speculate. We can estimate. We can guess. But only time will tell what the most important differences are and how those differences will affect the credit world.
There are certainly some concerns about the bureaus’ bid to control the scoring system. Since "sub-prime" data is a big (and hot) credit market, it creates a conflict of interest in that the credit bureaus PROFIT from lower credit scores… and now with the Vantage Score, they decide who gets them.