What Does Your VantageScore Credit Score Mean?

In addition to the FICO score, people now must deal with the newer VantageScore. In 2007, the major credit bureaus combined forces to create the VantageScore, which purports to have greater accuracy and to rate consumers more fairly than the FICO model. As of 2010, however, the VantageScore has yet to break the dominance of the FICO formula in its usage by lenders.

Considerations

Credit scores are meant to rank people based on their ability to pay back a debt as compared to other people in a similar financial situation. The major credit rating companies, however, developed the VantageScore mostly as a way to stop paying royalties to the Fair Isaac Corporation, which developed the FICO score formula. Every time a credit bureau runs your score, it has pay money to the FICO for the use of its secret formula.

Features

The VantageScore is very similar to the FICO model. The main difference lies in the claim that the VantageScore can standardize scores from different databases. The major credit bureaus do not share information, which can lead to large variation in scores for the same consumer. Also, the makers of the VantageScore say it can create more separation between bad and good risks. Lenders are always looking for ways to avoid consumers who are likely to default on their loans.

Benefits to the Consumer

Not everything about the VantageScore benefits the lender. The VantageScore could be easier for consumers to understand. The current FICO model gives a number, but does not necessarily explain what it means. The VantageScore system breaks scores down into A, B, C, D or F brackets, with "A" being the best and "F" the worst. The VantageScore model also rates those with a limited history more fairly than the FICO model, which could mean people with a thin credit profile have better access to credit.

Importance

The VantageScore has made little impact on the credit scoring market. As of 2009, the VantageScore achieved market penetration of just 5.7 percent, with almost none of that coming from the Fair Isaac Corporation, according to the CreditScoring website. The credit markets like predictability, so it could be years before lenders and investors bother with the VantageScore. As of 2010, the VantageScore is not used by any mortgage lender; however, all of the top five credit card issuers use it, according to Fox Business.