While the FICO score remains the most popular credit scoring model in the U.S., the VantageScore model is quickly growing as a favorite amongst lenders. Developed jointly by the three major credit bureaus (Experian, Equifax, and TransUnion), VantageScore was used more than 6 billion times by lenders from mid-2014 to mid-2015.

Vantage Score

The original version was created in 2006 and the current VantageScore 3.0 now reflects the most up-to-date trends in credit scoring. Don’t just assume your next lender will automatically request your FICO score. Brush up on the details of VantageScore 3.0 to understand how it works and why it matters.

Why Credit Scores Matter

Like any other credit scoring model, VantageScore analyzes the information in your credit report to assign you a numerical grade based on your creditworthiness. Whenever you go to apply for a loan or even a credit card, the lender looks at both your credit report and your credit score to get an idea of how likely you are to repay the loan or card balance.

If you have a high credit score, you’ll be offered the best loan conditions, like low interest rate, higher loan amounts, and longer repayment periods. You get a lot more flexibility with the type of loan or credit card you can get when your credit score is strong.

If you don’t have a good credit score, you might not even get approved for a loan or credit card, depending on the lender and your actual score. Even if you do qualify for a loan, you’ll pay a lot more in interest and probably won’t be able to borrow as much as someone with a higher score. And just because you’re not planning on applying for a loan anytime soon doesn’t mean your credit score can’t affect you. Both landlords and employers can request access to your credit history to find out just how trustworthy you’d be as a tenant or employee.

How VantageScore 3.0 Works

The new VantageScore 3.0 range follows FICO’s scoring range because it’s the one consumers are most familiar with. Instead of scoring consumers on the original scale of 501 to 990, the new model now uses the ubiquitous 300 to 850 range, with 300 representing the lowest score and 850 representing the highest. The change in score values also helps lenders who might have an automated system already in place based on the FICO scoring range.

The VantageScore 3.0 factors in six different categories when calculating a credit score. While the actual weight of each category differs from person to person, the order of importance remains the same. They not only tell you what your current score is based on but also give insights as to how you can effectively improve your score in the future. Here they are explained from the most important elements down to the least important.

Payment History

Like your FICO score, VantageScore 3.0 is largely concerned with how you’ve handled your past payments. After all, past behavior is one of the most reliable ways to determine future behavior, at least in the eyes of credit bureaus and lenders. Not only does your credit score suffer when you have late payments listed on your credit report, you also hurt your chances of getting approved for financing further down the road.

Credit Age and Type

The next most important category weighs how long you’ve had credit and what kind of credit you have. The older your accounts are, the better it is for your score. You’ll also score better on your VantageScore 3.0 if you have different types of credit. Also known as your credit mix, it’s ideal to have a mix of revolving credit (like credit cards) in addition to installment loans.

Credit Utilization

This is another major factor in determining your VantageScore 3.0. Credit utilization refers to how much credit you’ve used compared to your overall limit. If you’re close to maxing out your credit cards, you won’t score well in this category.

Total Balance of Debt

Not only does VantageScore 3.0 consider the ratio of debt to available credit, the scoring model also looks at how much debt you carry overall. If you’re trying to increase your credit score, paying down your debt is a great place to start because it helps you in both of these areas.

Inquiries and Recent Behavior

Just like FICO, VantageScore 3.0 also evaluates how many recent hard inquiries you’ve had on your credit report and how many new lines of credit you’ve opened up. Having many inquiries and new credit cards can raise a red flag that you’re in a tight financial spot.

Available Credit

Last but not least, VantageScore 3.0 looks at how much credit you’re approved for. While this is the least impactful category, a quick way to raise your credit score by a few points would be to ask one or more of your current creditors to extend your maximum balance — as long as you aren’t tempted to actually spend that much.

Who VantageScore 3.0 Helps

VantageScore 3.0 considers more information than its competitor FICO, helping to score as many as 30 million individuals who would otherwise be deemed as having too little credit. It looks at broader data points, including a full 24 months of credit activity, and sometimes even longer. This helps people who don’t frequently use their credit cards and consequently have “thin” credit.

It’s not that they necessarily have bad credit, they simply might not utilize their credit often enough to have a comprehensive history. VantageScore 3.0 is particularly helpful to potential borrowers in the process of building (or rebuilding) their credit.

Another helpful feature that comes with VantageScore 3.0 is that collections accounts that have been paid in full do not hurt your credit score. They’ll still stay on your credit report for up to seven years just as they always have, but they won’t be included when actually calculating your credit score.

VantageScore 3.0 also ignores any item in collections under $250, regardless of whether they are paid or not. These new guidelines are a huge help to people trying to recover from past financial issues.

Tips for Increasing Your VantageScore

Whether your credit score is exactly where you want it to be or you have some work to do before you’re happy with it, there are a few effective ways to either maintain or raise your VantageScore 3.0.

Pay Bills Regularly

As you can tell by the scoring categories, your first step is to pay all of your bills on time each month. Even if a certain creditor doesn’t report your on-time payments, they could very likely report your late ones. Anything paid 30 days late or more can cause a huge drop in your score, so stay on top of those bills each month.

Lower Your Credit Utilization

Aim to owe no more than 30% of your credit limits in order avoid lowering your credit score. You can use that number as your initial goal when paying down your debt. It’s a much more manageable number than zero and can give you the confidence you need to keep working on debt elimination.

Minimize Credit Inquiries

A single inquiry only lowers your VantageScore by a few points, but those can really start to add up if you’ve applied for multiple loans or credit cards. Take it easy and only apply for credit when you really need it. When possible, ask for a pre-approval to compare offers without having a hard inquiry performed on your credit report.

Mix Up Your Credit

Credit cards might be the most popular type of credit available, but it shouldn’t be the only kind on your credit report. Installment loans are just as important, whether it’s a mortgage, personal loan, or car loan. Obviously, you shouldn’t take on unnecessary debt just for the sake of diversifying your credit mix, but you could help your score by making payments on a loan rather than just a credit card.

Keep Old Accounts Open

Since the length of your credit history is part of your VantageScore, it’s helpful to keep old accounts open even if you don’t use them anymore. They won’t drop off your credit report immediately, but they do disappear ten years after being closed. When that happens, it can cause your average account age to dramatically drop, and your credit score will drop, too.

VantageScore 3.0 carries several unique features that set it apart from the more traditional FICO score. And while not every difference is huge, it does open up a lot of opportunities to consumers who either don’t have an extensive credit history or are trying to put a less-than-perfect financial past behind them. Now that you know how VantageScore 3.0 works, you can work to improve yours as lenders continue to use this model more frequently in the loan and credit approval process.