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Credit scores have a major impact on our financial lives. Lenders and other organizations rely on these numerical “grades” to make objective and accurate business decisions. Good scores enable you to borrow money easily and with attractive interest rates, while poor scores result in high-interest loans and lines-of-credit – or being denied the opportunity to borrow altogether. Creating and maintaining a positive score, therefore, is the best way to finance your goals at the lowest possible cost.
Though the most familiar credit-scoring model is the FICO score (developed by the Fair Isaac Corporation), there is another credit-scoring model to know about. Called the VantageScore, it was created by a company called VantageScore Solutions, and is promoted as a very simple and easy-to-understand type of scoring method. This company’s scoring model strives to help lenders predict risk with the greatest degree of accuracy while being favorable to consumers with short credit histories.
A single formula vs. multiple formulas
VantageScores use just one formula to evaluate risk instead of the three slightly different models that the three major credit bureaus – TransUnion, Equifax, and Experian – originally developed with Fair Isaac. Because the mathematical model is the same from bureau to bureau, you will only see a difference in your score if the information on your reports varies.
The scoring system
VantageScores have both numerical scores and letter grades. The scores range from a low of 501 to a high of 990. Higher scores indicate low risk and lower scores indicate higher risk. Each 100-point interval corresponds to a letter grade, and just as in school, an “A” means excellent, a “B” means very good, and so on:
How VantageScores are determined
VantageScores only use the information on a credit report to come up with a score. The factors contributing to a VantageScore are:
How to improve your VantageScore
A long and consistent history of responsible credit usage will improve all types of credit scores, including the VantageScore. You can increase your score by:
Who uses VantageScores
There are a number of companies that offer a variety of credit scoring models, and financial institutions and other businesses may use any of them. Because the VantageScore is relatively new, it is not used as much as the FICO score at this time, but its popularity is increasing. All credit scores are products of the company that developed them, and anyone who accesses the scores must pay to view them.
If a lender believes that a particular scoring model will produce the most accurate risk assessment, that is the one that they will likely use – which may be the VantageScore or it may not. Which score is used is up to the business, not the consumer.
How to access your VantageScore
To obtain your VantageScore, contact the three credit reporting companies. TransUnion, Equifax, and Experian all provide them for a fee to both consumers and businesses.
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