Your credit score is an estimate of your riskiness as a borrower. Lenders will look up this score to decide whether or not to give you a loan.
The most common type of credit score is the FICO credit score, but this isn’t the only one available.
The credit rating agencies recently released a new model known as the VantageScore to give consumers more options.
What is a VantageScore?
A VantageScore is a three digit number that represents how safe a candidate you are to borrow money.
Your VantageScore can be anywhere from 501 to 990. A higher score is better than a lower score.
One interesting feature of the VantageScore is it gives your score a letter grade. This makes it easier to tell whether you are in good shape or not.
To get an A grade, the best possible rating, you need a VantageScore between 901 and 990.
How is your VantageScore calculated?
The three major credit rating agencies calculate your VantageScore based on a few different factors.
They will look at whether you are paying your bills on time, whether you’ve opened any new accounts recently, how close you are to maxing out your accounts, your total credit limit, your total outstanding debt and the length of your credit history to come up with your score.
This is a fairly similar calculation to the FICO credit score, but the VantageScore model uses a slightly different formula.
“Keep the VantageScore in mind if
you need help qualifying for a loan.”
For example, your payment history makes up 35 percent of your FICO score but only 28 percent of your VantageScore. However, since the two models have a lot in common, your scores should be fairly similar.
If you have a good FICO score, chances are you have a good VantageScore as well.
Why is the VantageScore useful?
The VantageScore offers some interesting features that can help more Americans access credit.
A credit account only has to be open for one month to count toward your VantageScore. It can take months for a new account to count for your FICO score.
In addition, the VantageScore shows the past 24 months of your credit history. FICO only shows the past six months.
If you had credit problems in the past but recently made an improvement, lenders will be able to better see this trend with the VantageScore because more information shows up.
One other nice feature of the VantageScore is it offers a predictive score. This estimates what your score will be in the next two years based on your previous history.
Once again, if you don’t have much credit history, it will be hard to qualify for loans with a FICO score. If you’ve been on time with your payments even for a few months, the VantageScore will predict a good future score, which will help you qualify for loans.
While the FICO credit model is still the most popular type of credit score, it doesn’t work for every situation.
Be sure to keep the VantageScore model in mind in case you ever need some help qualifying for a loan.
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