Forget About FICO! Start Learning About VantageScore

In December 2018, the Federal Housing Finance Agency (FHFA), the primary regulator for the mortgage industry, issued a statement prohibiting Freddie Mac and Fannie Mae, government-sponsored enterprises that buy home loans from lenders, from adopting VantageScore as an alternative to FICO.

Every mortgage lender in Utah, Texas, Idaho, or any other parts of America knows that a potential conflict of interest is the rationale behind that decision. VantageScore credit scoring models are developed by a company backed by the three nationwide credit bureaus: TransUnion, Equifax, and Experian.

Although the first VantageScore version was rolled out in 2006, FICO maintained its monopoly over the mortgage space. The government warning about the adoption of VantageScore only assured its dominance in the foreseeable future.

However, the FHFA is now singing a different tune. Seven months after the announced prohibition, the government agency is now giving its blessing to Freddie Mac and Fannie Mae to include VantageScore in the list of alternative credit scoring models.

This change of heart by the FHFA causes a tectonic shift in the balance of power in the credit scoring industry. While mortgage lenders are not going to switch to VantageScore from FICO right away, you should know how your creditworthiness will be judged in the future since it can affect significant aspects of your life.

If you are unfamiliar with VantageScore, you are not alone; many people have probably never heard of it. Fortunately, VantageScore is almost the same as FICO in terms of the factors they deem necessary when calculating consumer credit scores. What separates VantageScore from the market leader is how it weighs certain things more or less than others.

For starters, below are the things you should remember to keep your VantageScore as high as possible.

Limit Rate Shopping to Two Weeks

Macro shot of old credit card

Credit applications can slightly hurt your credit scores because they trigger hard inquiries. Based on the principle of deduplication, though, several hard questions reported over a short period are counted as one.

Like FICO, VantageScore understands the need to shop around to get the best deal. The high number of hard inquiries is only incidental. Unlike FICO, though, VantageScore only allows a 14-day window to deduplicate multiple credit applications.

Observe Modest Credit Utilization

The VantageScore 4.0, the credit scoring model’s latest iteration, puts a premium on historical credit utilization. Its algorithm taps the memory of your credit usage and takes trended data into the equation.

Instead of looking at your most recent credit utilization rate, the VantageScore 4.0 goes as far as two years’ worth of historical payment data. In other words, you should make it a habit to keep your credit card balances within 30% of the limits to be scored high by VantageScore.

Avoid Late Mortgage Payment

FICO and VantageScore dislike past due balances, but the latter especially hates delinquent mortgage payment. Expect harsher point deductions if you forget to pay your mortgage lender than your other creditors.

Single family house on a pile of money. Concept of mortgage payment

As with FICO scoring models, VantageScore versions have certain dissimilarities, so the scorecards different depending on what the lender decides to use. Nevertheless, you should start building your credit around what both FICO and VantageScore deem vital if you are to join and stay in the 800-point club.

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