If you’re applying for a mortgage, shopping for an auto loan, or looking for a new low-interest
credit card, the scoring model your lender will look at is probably different.
Which scoring model is “better?”
There really is no answer, as different lenders prefer to use one of the two for different reasons.
(There are also a whole lot of different versions of FICO https://bluewatercredit.com/comparing-different-fico-scores-mortgage-credit-card-auto-lending/)
According to FICO, 90% of the top lenders use FICO Scores and 10 BILLION FICO Scores are
purchased every single year! But VantageScore points out that 2,600 financial institutions,
including 90% of the biggest banks in the U.S., use their scores.
But remember that both VantageScore and FICO use the same data, provided by the three
major credit reporting bureaus.
Typically, the fundamentals of building and maintaining good credit remain the same.
Most credit scoring models in VantageScore and FICO rate credit scores in a range from 300 to 850. And if you pay all
of your debts on time every month, keep your balances low, and have a good mix of seasoned
credit accounts, your score will rise between both FICO and VantageScore.
But while there are plenty of similarities, there are also some specific differences between FICO
and VantageScore. In our experience we have seen FICO and Vantage credit scores differ by over 100 points with the exact same credit report! With that being said you need to know what type of loan you are going to be applying for next and find out what credit scoring model they use for that loan. Most of our clients are applying for a home loan and the mortgage industry only uses the FICO mortgage credit score. If you want to know that score you can buy it here: www.myfico.com or have your lender check your credit scores. Any other credit score you are looking at may not be accurate.
FICO was developed by the Fair Isaac Company in 1956 and FICO scores were released in
1989. It remains the nation’s preeminent credit scoring model, preferred by the majority of
VantageScore, on the other hand, was created by the three major credit bureaus – Equifax,
Experian, and TransUnion. Around since 2006, it’s rising in popularity for its utility in certain
FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%)
Your FICO Scores are unique, just like you. They are calculated based on the five categories referenced above, but for some people, the importance of these categories can be different. For example, scores for people who have not been using credit long will be calculated differently than those with a longer credit history.
The way your VantageScore is calculated depends on which version of the score you’re using. The VantageScore 3.0 is the best-known version, but the credit bureaus released the VantageScore 4.0 in 2017. The new model considers your credit reports in a slightly different way.
Payment history looks at whether you pay your bills on time. This is where being late on your payments will hurt your score. The later the payment and the more late payments you have, the more serious the impact on your VantageScore. How recently you made a late payment also matters. They stay on your credit report for seven years, but their effect diminishes over time.
Depth of credit looks at the age of your credit accounts. This includes your average, oldest, and youngest account age. Older account ages help your VantageScore because they give lenders a longer-term view of how you manage your money. This helps them make more educated decisions about whether or not to lend to you.
The depth of credit category also looks at the type of credit accounts you use. There are two main types: revolving and installment debt. Revolving debts have a monthly spending limit, but your actual bill could vary. Credit cards are the most common type of revolving debt.
Installment loans like mortgages, auto loans, and personal loans have a predictable monthly payment. Showing that you can successfully handle both types of credit will boost your score more than just having a single type of credit on your reports.
Credit utilization looks at how much credit you use and how much you have access to. It takes into account your balances on installment loans, but focuses more on your revolving credit.
The relationship between the amount you charge to your credit cards each month and your total credit limit is your credit utilization ratio. You want to keep this under 30% if possible, as long as it remains above 0%. A high credit utilization ratio indicates a heavy reliance on credit and suggests that you might be living beyond your means.
The balances category looks at the total balances remaining on all of your credit accounts, both current and delinquent. High balances can hurt your score, even if you’re current on all of your payments. But the effect isn’t severe, especially in the VantageScore 4.0 model where it only accounts for 6% of your total score.
Recent credit looks at the number of credit accounts you’ve recently opened and the number of hard inquiries showing on your report. Every time you apply for a new loan or line of credit, the lender does a hard inquiry on your report and this drops your score by a few points. But credit scoring models understand that people typically shop around when applying for new credit. VantageScore considers all hard inquiries that take place in a 14-day period as a single inquiry.
Opening several new credit accounts close together is a red flag for lenders because it could indicate a potential change of fortune or an increased reliance on credit that could leave you unable to pay back new funds that you borrow. VantageScore has given this category more weight in its 4.0 scoring model.
The final category is available credit. This category looks at how much credit you have available on your revolving credit accounts. This doesn’t have a huge effect on your score but having a larger amount of available credit can raise your score slightly.
Very Poor: 300-579
Very Good: 740-799
Very Poor: 300-499
Most importantly, the factors that influence your FICO vary slightly.
FICO scoring factors:
35% Payment history
30% Amounts owed
15% Length of credit history
10% Credit mix
10% New credit
VantageScore 3.0 scoring factors:
40% Payment history
21% Age and type of credit
5% Recent credit
3% Available credit
How you obtain your FICO versus VantaeScore also differs.
You can usually access your VantageScore for free using a few credible websites like
CreditKarma.com or CreditSesame.com.
But with FICO, you will have to go to myFICO.com to sign up and pay to see your credit scores
(you can access your credit report for free from each bureau once per year at www.annualcreditreport.com.
Additionally, some banks, lenders, or credit card companies may offer a free version of your
score from either FICO or VantageScore if you are a client.
Whether you need help boosting your FICO or VantageScore or just have questions about
credit, please contact Blue Water Credit for a risk free consultation!