# VantageScore

VantageScore is a consumer credit-scoring system in the United States, created through a joint venture of the three major credit bureaus (Equifax, Experian, and TransUnion). The model is managed and maintained by an independent company, VantageScore Solutions, LLC, that was formed in 2006 and is jointly owned by the three bureaus. VantageScore models compete with the FICO score produced by Fair Isaac Corp. (FICO). Like the models developed by FICO, VantageScore models operate on data stored in the consumer credit files maintained by the three national credit bureaus. VantageScore models and FICO models use statistical analysis on those data to predict the likelihood a consumer will default on a loan. Both VantageScore and FICO models represent risk of loan default in the form of three-digit scores, with higher scores indicating lower risk, but VantageScore and FICO use different, proprietary analytical methods, and scores from one system cannot be translated into one from the other.
As of 2024, mortgage lenders use both FICO and VantageScore models, with a significant shift towards VantageScore due to recent regulatory changes.

## History and Development
### Creation and Early Years

VantageScore was created in 2006 as a joint venture between the three major credit bureaus: Equifax, Experian, and TransUnion. The primary motivation behind its creation was to introduce a more consistent credit scoring model across all three bureaus, addressing inconsistencies that existed in earlier scoring systems.
The development of VantageScore was also driven by a desire to:
* Provide a more inclusive scoring model that could generate scores for a broader segment of the population, including those with limited credit histories.
* Offer lenders an alternative to the dominant FICO scoring model, potentially increasing competition in the credit scoring market.
Create a model that could adapt more quickly to changes in consumer credit behavior and economic conditions.

### Growing Adoption and Recognition

Since its introduction, VantageScore has seen increasing adoption among lenders and financial institutions. Several factors have contributed to its growing popularity:
* Consistent scoring across bureaus: VantageScore's ability to provide more consistent scores across the three major credit bureaus has appealed to both lenders and consumers.
* Inclusion of alternative data: VantageScore models, particularly in later versions, have incorporated alternative data sources, allowing scores to be generated for consumers with limited traditional credit histories.
* Regulatory recognition: In 2019, the Federal Housing Administration (FHA) approved the use of VantageScore for FHA-insured mortgages, marking a significant milestone in the model's acceptance.
* Consumer accessibility: Many free credit score services provide consumers with VantageScore credit scores, increasing its visibility and familiarity among the general public.

### Market Share and Industry Impact

While exact market share figures are not publicly disclosed, industry reports suggest that VantageScore has made significant inroads in various sectors of the lending industry:
* Credit card issuers: Many major credit card companies have adopted VantageScore for various aspects of their underwriting processes.
* Auto lending: VantageScore has gained traction in the auto lending sector, with several large auto lenders incorporating it into their credit decisions.
* Fintech and online lending: Many fintech companies and online lenders have embraced VantageScore, particularly due to its ability to score consumers with thin credit files.
* Mortgage lending: The recent FHFA mandate (discussed in a later section) is expected to significantly increase VantageScore's presence in the mortgage lending industry.

## VantageScore vs FICO score

VantageScore and FICO are competitors, and FICO was not involved with the creation of VantageScore's formula. VantageScore, FICO and the credit bureaus have allowed the public to know some information about the credit score categories and the corresponding calculation weights. FICO allows consumers to get their generic or classic FICO score for Experian, TransUnion, and Equifax through the myFICO website. Consumers can get their VantageScores from free credit report websites, and TransUnion and Experian offer VantageScores to consumers for a fee through their websites. In contrast with FICO's credit scoring models, which are custom-built for each of the three national credit bureaus, to accommodate structural differences in the bureaus' databases, VantageScore model design allows a single model to operate on all three bureaus' data. VantageScore Solutions holds several patents on processes that ensure pieces of data within each bureau's consumer database will be treated identically, regardless of differences in database structure. These methods eliminate much, but not all, discrepancy in VantageScore scores obtained at the same time from different credit bureaus. Some variation is unavoidable because factors such as the timing of lenders' payment-information reports can mean the contents of a given consumer's credit file will differ somewhat at each of the three credit bureaus. Important differences between the VantageScore and FICO algorithms include:
FICO scores require having at least one account that has been open for six months or more and has been reported to the credit bureaus within the prior six months, whereas the VantageScore can be issued from just one month's credit history and with just one account reported within the prior two years. VantageScore thus captures consumers with little or thin credit histories; tax liens are weighed less heavily in VantageScore® 4.0 than in FICO scores; When a credit inquiry is made at one of the credit bureaus, it negatively impacts credit scores. Current versions of the FICO score treat multiple credit inquiries made within a 45-day period as if they were a single inquiry for scoring purposes (though some older versions of the FICO score restrict this to 14 days), but only if they are for the same type of loan. VantageScore counts multiple inquiries within a 14-day period as if they were a single inquiry, even if the inquiries are made for different types of loans. The older FICO 8 score, which is still often used as of 2020, treated medical debt like any other unpaid debt for scoring purposes; medical debt has less impact than other unpaid debt in the newer FICO 9 score and VantageScore 3.0 and forward.
For a comprehensive comparison of FICO scores and VantageScores, including how creditors use them, refer to this detailed analysis.

## VantageScore Models

VantageScore has released several versions of its credit scoring model since its inception in 2006. Each new version aims to improve the model's predictive power and adapt to changing credit landscapes.

### VantageScore 1.0 (2006)

The original VantageScore model, introduced in 2006, used a scale range of 501 to 990 and assigned letter grades to various score bands.

### VantageScore 2.0 (2010)

Released in 2010, this version maintained the 501-990 scale and letter grade system of its predecessor. According to TransUnion, the letter grades corresponded to the following score ranges:
    A: 900–990
    B: 800–899
    C: 700–799
    D: 600–699
    F: 501–599

### VantageScore 3.0 (2013)

VantageScore 3.0, released in 2013, marked a significant change by adopting a scale of 300 to 850. This change aligned VantageScore with the scale range used by FICO models, making it easier for consumers to understand and for lenders to implement.

### VantageScore 4.0 (2017)

VantageScore 4.0, released in mid-2017, introduced several significant updates:
Reduced weight for medical accounts in collections compared to non-medical collection accounts. Exclusion of paid collection accounts from score calculation. Introduction of trended data analysis, examining a consumer's credit utilization rates over time rather than just the most recent billing cycle.
As of 2023, Synchrony Bank uses VantageScore 4.0 as the credit score for granting its credit cards.

## Adoption in Mortgage Lending

The Federal Housing Finance Agency (FHFA) has mandated that mortgage lenders use VantageScore 4.0 for mortgages sold to Fannie Mae and Freddie Mac, beginning in the third quarter of 2024. This includes all loans guaranteed by these Government Sponsored Enterprises (GSEs), which make up the majority of residential mortgages. This significant shift is expected to increase the adoption and importance of VantageScore in the mortgage industry.

## Future Developments

As the credit scoring landscape continues to evolve, VantageScore is likely to face both opportunities and challenges:
Increased competition with FICO, particularly in the mortgage lending sector. Potential for further incorporation of alternative data sources to enhance predictive power and inclusivity. Adaptation to changing consumer credit behaviors, particularly in light of economic shifts and technological advancements. Ongoing regulatory scrutiny and potential changes in credit reporting practices.