A prospective home buyer with a limited credit history or past credit slip-ups can face difficulty finding a lender to obtain a mortgage. Lenders are frequently unwilling to take on the risk of approving borrowers who lack high FICO scores, which require the regular use of credit and a track record of on-time payments. Fortunately for such borrowers, another method to measure creditworthiness, known as VantageScore, has emerged to compete with FICO. Before you choose a lender, ask prospective lenders which model they use. Lenders should disclose this information.
One of the main credit scoring models lenders use today to figure out if a borrower is creditworthy is VantageScore. But do lenders really use VantageScore? The short answer is yes, a lot of big lenders use it to decide who to lend money to.
An Overview of VantageScore
VantageScore is a credit scoring model developed jointly by the three major credit bureaus – Equifax, Experian, and TransUnion. The VantageScore model generates a credit score ranging from 300 to 850 that summarizes a consumer’s creditworthiness.
The latest version, VantageScore 4.0, uses machine learning to analyze trended credit data and score over 30 million more consumers than previous versions.
Key benefits of the VantageScore model include:
- Scores consumers with limited credit history – only 1 month of credit history is needed
- More predictive scoring for creditworthy borrowers
- Consistent scores across the three credit bureaus
Widespread Adoption Among Lenders
Since its introduction in 2006 VantageScore has seen rapid adoption among lenders of all sizes. Here are some key stats on the use of VantageScore
- Used by 8 of the top 10 largest banks
- Used by 7 of the top 10 largest credit card issuers
- Used by 9 of the top 10 largest auto lenders
- Used by 8 of the top 10 largest mortgage lenders
VantageScore credit scores were used by lenders more than 6 billion times in 2021 alone. Over 3700 banks, credit unions, and fintech lenders use VantageScore to figure out how risky it is to lend money.
VantageScore is used by big banks like Chase, Capital One, and Wells Fargo to decide who gets credit cards, loans, and prescreen offers. VantageScore models are used by top mortgage lenders like Quicken Loans and loanDepot for automated underwriting systems. VantageScore is also used by top auto lenders like GM Financial and Santander Consumer to start auto loans.
VantageScore models are used by marketplace lenders and fintech companies like Upstart, LendingClub, and SoFi to decide who gets personal loans.
VantageScore Use Cases
Lenders use VantageScore credit scores in the following key ways:
Loan Originations
One of the primary use cases is using VantageScore as part of the loan application and approval process. Lenders will pull a borrower’s VantageScore credit report to quickly assess their credit risk profile and make a lending decision.
Higher VantageScores are correlated with lower default rates, allowing lenders to extend credit to borrowers with good scores. Meanwhile, borrowers with low VantageScores may be denied credit or offered less favorable loan terms.
Account Management
In addition to originations, lenders use VantageScore to monitor the creditworthiness of existing borrowers. Sudden drops in VantageScore can alert lenders to increased default risk. Lenders may then lower credit limits, increase interest rates, or take other actions to mitigate risk.
Meanwhile, increases in VantageScore allow lenders to pre-approve existing customers for additional credit products.
Prescreen Offers
Many lenders use VantageScore for the prescreening process to identify consumers who qualify for pre-approved loan offers. Prescreen offers allow lenders to proactively market to potential new borrowers who meet their lending criteria.
Securitization & Secondary Markets
VantageScore is widely used in structuring asset-backed securities for the secondary loan market. The credit score profile of underlying loans being securitized will determine the bond credit ratings and pricing.
Advantages of Using VantageScore
There are several key advantages that make VantageScore a preferred choice among lenders:
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Consistent scores – Unlike FICO, VantageScore produces identical scores across Equifax, Experian, and TransUnion for a borrower. This avoids confusion from score variances.
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Broader coverage – With its machine learning capabilities, the latest VantageScore 4.0 model can score 40 million more consumers than previous versions. This allows lenders to assess more applicants.
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Custom model development – VantageScore allows lenders to develop customized credit scoring models that incorporate unique variables important to their business.
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Lower costs – Industry estimates peg the cost of VantageScore credit reports at just 60-70% of the cost of FICO scoring. The lower costs make it attractive to many lenders.
VantageScore Use Continues to Grow
VantageScore only entered the market 16 years ago, but has rapidly gained mainstream adoption across all major lending sectors. With over 6 billion scores used annually, it is clear that VantageScore is relied on by major banks, credit unions, fintech lenders, and more.
Driven by its innovative attributes and advantages like broader consumer coverage, VantageScore adoption will likely continue growing in the years ahead. For lenders looking to leverage the latest credit scoring models, VantageScore is clearly an option worth considering.
Ask Before Signing
The best way to find out is to ask which kind of scoring model the lender uses. Based on the numbers provided by VantageScore, theres a good chance youll find a creditor who uses the model. According to VantageScore, more than 2,200 lenders use its scoring model, including some of the largest banks in the United States.
VantageScore is embedded in the Consumer Financial Protection Bureau (CFPB) and the Nationwide Mortgage Licensing System & Registry.
Don’t Put All Your Eggs in One Basket
Before you go out, keep in mind that few lenders have abandoned FICO entirely. Most use a combination of both—particularly for borrowers with credit issues. This is why its important for consumers to understand the scoring model used by a lender before signing a loan application and agreeing to a credit pull. Submitting loan applications haphazardly to land a hit can result in excessive credit inquiries, further depressing a credit score.
Part of a loan officers job is to understand their employers criteria for approving applicants. This includes knowing which credit models are used and how they are weighted versus one another. Borrowers who want to be scored by VantageScore should glean this information from the loan officer up front.
Few lenders have abandoned the FICO scoring model completely.
Do Lenders Use VantageScore Or FICO Score? – CreditGuide360.com
FAQ
How many lenders use VantageScore?
According to VantageScore, more than 2,200 lenders use the model to assess consumers’ creditworthiness. Brokers can also help steer mortgage applications to lenders who exclusively use VantageScore. What is a VantageScore? The VantageScore is a consumer credit score that was made in 2006 to compete with the FICO score.
What is a VantageScore credit score?
Read More VantageScore 3. 0 is one of many credit scoring models used by financial organizations, lenders and credit bureaus. You may already be familiar with FICO scores, which is one of the most common credit scoring models in use today. VantageScore is another commonly-used credit score.
Which mortgage lenders do not use VantageScore?
It is important to note that mortgage lenders such as Alterra Mortgage Loans, Fannie Mae, Carrington Mortgage Services, Freddy Mac, Quicken Loans, and New American Funding do not use VantageScore to evaluate credit scores. To access a mortgage loan in the coming months, you must assess your credit score.
What is the new VantageScore?
The new VantageScore 3. 0 ranges from 300 to 850. FICO scores are the most widely used scores used by lenders to determine the creditworthiness of consumers. This means more institutions use FICO over any other scoring model to decide if someone should get a loan, mortgage, or any other credit product.
How many banks use VantageScore credit scores a day?
Over 3,700 banks, fintechs and other institutions use VantageScore credit scores every day to assess consumer creditworthiness. Most top 10 US banks, large credit unions and leading fintechs use VantageScore credit scores in one or more lines of business including credit cards, auto loans, personal loans and more.
Do you have a VantageScore?
So, there’s a good chance you do have a VantageScore. In fact, around 40 million people who don’t have a score under other score models have a VantageScore. Some FICO scoring models require you to have an account for a certain amount of time before it counts toward your credit score.
Do any creditors use VantageScore?
Many lenders, including banks and mortgage providers, use VantageScore 3. 0 to help determine approvals, loan terms and more. Your VantageScore may be different from your FICO® score for a few different reasons, including the way in which your score gets calculated.
Does Chase use VantageScore or FICO?
Chase Credit Journey uses VantageScore 3. 0, which is a credit scoring model developed by the three major credit bureaus: Experian, Equifax® and TransUnion®. VantageScore 3. 0 provides a snapshot of a consumer’s credit health and behavior.
Do banks check FICO or Vantage?
Credit scores are based on the information in credit reports and are used to make lending decisions. VantageScore and FICO are the credit-scoring companies most commonly used by lenders. Credit-scoring companies each have their own credit-scoring models for determining credit scores.
What is a good VantageScore for a mortgage?
Key Takeaways: A good credit score falls in the range of 661 to 780 for the VantageScore® 3. 0 model.