VantageScore is an alternative credit scoring system that uses a different mathematical scoring model than the better known FICO score.

FICO gets its name from the “Fair Isaac COmpany”. The Fair Isaac Company developed the original credit scoring formula. It periodically tweaks the scoring formula responding to changes in the law, technology and economic reality. To learn more about the changing FICO scoring model, see the Monkey’s recent post “3 Big Changes to Medical Debt Credit Reporting Everyone Needs to Know.”

VantageScore is not a variation of the well established FICO model. It’s an entirely different algorithm.  In fact, the three (3) major consumer credit bureaus developed VantageScore in coordination to compete with FICO. The credit bureaus was released the alternative technology in 2006. Shortly thereafter, it was transferred to an “independently managed” company named VantageScore Solutions, Inc.

Without getting technical, FICO and VantageScore use the same scoring scale. The lowest score is 300 and the highest is 850. However, VantageScore calculates paid collections and delinquent accounts differently than FICO. That may explain differences between FICO credit scores and VantageScores.

FICO credit scores remain the industry standard for large ticket financing like mortgages and automobile loans. That said, VantageScore is making some headway against its more established competitor. Industry sources estimate that about 2500 companies use a VantageScore when making credit decisions.

New Credit Score Customers

On its website, VantageScore Solutions alleges that VantageScore was designed to be simpler, more predictive, and generate more consistent scores across the three (3) credit reporting companies. That maybe true. However, industry chatter suggests that VantageScore was created as leverage against FICO’s ever increasing licensing fees and as a new product that could be cheaply sold to the mass market.

Industry experts suggest that websites and credit card companies that offer free credit scores primarily use VantageScore. Financially, that makes sense because VantageScore offers virtually unlimited access to credit scores to large clients for an affordable flat fee.

Is a Free Score Really a Credit Score

Many consumers find free credit scores different than their paid scores. Perhaps free scores vary slightly from their purchased counterparts. Maybe free scores are generic and the scores pulled for consumers are tweaked for a particular industry. While there may be some truth in those theories, the Credit Monkey believes that the real difference between free and paid scores is timing.

A credit score is calculated on the day it is requested. The algorithm changes the score as each new debt is created and each old debt retired. A credit file expands and contracts. A score calculated from a “thick” credit file bounces less with multiple reported transactions compared to a consumer with a “thin” credit file whose score could bounce drastically from a single reported transaction . To learn more about how a score is calculated see the Monkey’s post “The Five Categories of Credit Scoring.” 

Does VantageScore Mean Anything

If you expect your VantageScore to mirror your FICO score, you will be disappointed. VantageScore calculates its number in an entirely different way than FICO. VantageScore uses composite information from all three credit information repositories to calculate its score rather than information from a single repository as does a FICO score.

When a lender pulls a credit report, it receives a FICO score from one (1) or all of the credit bureaus depending on the type of pull. Rarely are all three FICO scores the same because information reported by creditors to the repositories is not the same. As an example, mortgage companies do a “tri pull”. That means it collects information and scores from all three (3) credit bureaus. It throws out the high FICO score and the low FICO score and uses the middle score for evaluation. However, mortgage companies investigate information from all three (3) repositories regardless of the score.

Auto lenders and property managers typically use FICO scores from only one credit bureau. The credit score provided by the selected credit bureau is the score they use. If the score provided by the selected credit bureau is the lowest of the three (3) credit scores, you are stuck. You pay higher interest or large deposits. If the favored credit bureau happens to be the one with your highest score, lucky you. You save money with lower interest rates and reduced deposits.

If mortgage companies, auto lenders and property management companies almost universally use FICO score, why should I concern myself with VantageScore? Simple. Because with VantageScore there are no hassles and because it free. Your VantageScore is on almost all your credit card statement and is available on dozens of websites.

VantageScore Is a Credit Thermometer

VantageScore is the Credit Monkey’s credit thermometer. If the Monkey’s VantageScore goes up, then he knows his FICO score is likely going up. If his VantageScore goes down, then he pulls a credit report to find out why. That doesn’t mean that before making a major credit purchase he won’t pull a FICO score. He does. It just means that he doesn’t need to pay for a FICO score every time all he wants to check his credit health.

A low credit credit score can cost you thousands of dollars in high interest rates or choosing a more costly alternative purchase because your credit score makes it your only option. Take advantage of the credit thermometer and monitor your credit health regularly for free with VantageScore.

If you found this post helpful, please leave a comment. Better yet, share it on social media or send the Monkey an email and tell me about it. [email protected].