If you pay attention to financial news, you may have heard the term “VantageScore.” But what is VantageScore? Do you have one? If not, how do you get one? How is this different from a regular credit score? Here’s a closer look at this rising player in the credit scoring world.
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A New Credit Score
Historically, there has been one credit score that matters: your FICO score. Produced by Fair Isaac Co., FICO takes your financial data from the three credit reporting agencies — Experian, Equifax, and TransUnion — and analyzes it to create a snapshot of your borrowing activity. This snapshot is represented as a number, your credit score, that lenders can use to determine if you’ll be a safe loan candidate.
VantageScore, like FICO, offers a credit score gleaned from the reporting agencies’ data. But it uses a different model that analyzes the data in slightly different ways, and its relationship to the credit reporting agencies is also unique.
Origins of VantageScore
VantageScore was actually created by the three credit reporting agencies as a competitor to FICO. They were tired of always having to pay FICO to create a score using their data, and wanted to have a way to analyze their data themselves without having to involve a third party.
The term “VantageScore” actually refers to two different things: the score and the company that creates the score. The company is technically named VantageScore Solutions but is commonly referred to as simply VantageScore.
VantageScore Solutions: A New Research Entity
VantageScore Solutions, in addition to selling credit scores, functions as a research entity.
In 2010, the Consumer Financial Protection Bureau (CFPB) began calling for higher standards in accuracy and fairness from the credit reporting agencies and credit scoring companies. At that point, VantageScore started using its computer research capabilities to explore what impact the higher standards would have on lenders and consumers and to project how the credit rating industry needed to change to comply with the CFPB’s new rules.
Establishing itself as a research authority was a clever move for VantageScore Solutions: it provides customer service and education for consumers, as well as predictability and stability for lenders. VantageScore’s research also preserves the integrity of the credit reporting agencies and their credit scores in the face of criticisms of unfairness and inaccuracies in the credit reporting industry as a whole.
How Is VantageScore Different?
The VantageScore credit score model isn’t just a cookie-cutter copy of the FICO score. VantageScore Solutions uses its computer-powered research approach to produce a number that better reflects consumer behavior over time and can be more realistically predictive of future borrowing behavior.
Big Data and Credit Scores
While FICO has been around since 1956, VantageScore debuted in 2006, so it is inherently a product of the digital age. Predictive analysis, big data, and progressive statistical modeling are cornerstones of VantageScore’s approach. The aim is to create a model that both works better across the board and takes into account financial situations characteristic of our current era.
The VantageScore model uses complex computer modeling driven by big data, which has only recently become possible. One difference is that VantageScore uses trended credit data, which takes a more granular look at your debit and credit card patterns over time, rather than a static picture of your current levels.
Trended credit data considers, for example, how you typically deal with your credit card: your average monthly balance, how high it gets before you start carrying a balance instead of paying it off, and whether there is a pattern to the times you tend to spend more.
A Technological Advantage?
VantageScore Solutions is continually updating the algorithm in response to new research technology that becomes available, making its approach more akin to a tech developer than a traditional bank.
More data points and types to draw from paints a more accurate, meaningful picture of consumer behavior. The more data you can use and analyze, the more realistic and less pixelated your picture can be. So while FICO is still the leader in terms of how broadly it’s used, VantageScore’s scientific approach makes it increasingly competitive.
VantageScore, both as a credit score and a research entity, is still a newcomer to the credit reporting landscape, so it remains to be seen how it will change the way scoring works in the long term.
But one thing is for sure: VantageScore Solutions, partly spurred by the CFPB requirements, is taking a more strategic approach to how credit scores are formulated. This will hopefully be a good thing for consumers because they’ll get more accurate and fair scores that let them pursue the credit they truly deserve.
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