When you go to a bank, creditor, or even a real estate agent, one of the first few things they will check before doing business with you is your credit score. A credit score helps lenders assess the risk involved in lending money to consumers. However, not all creditors or banks use the same credit score model; there are several ones out there, and in this guide, we are going to compare two of the most prominent credit scoring models: the VantageScore and the FICO Score.
VantageScore vs FICO Score
Credit scores range from 300 to 850 points, and higher scores indicate better creditworthiness. Likewise, if your credit score is lower, it highlights higher risks and may not help you get any good help from creditors or banks. These scores are calculated using information from your credit reports, which detail your credit history, including the types of credit accounts you have, your payment history, and any outstanding debts.
For instance, suppose Sam and Jessica are two individuals who wish to get an auto loan on their new vehicle. Jessica has always maintained a good credit score by paying on time and has a good credit history with a credit score of 750. On the other hand, Sam has a lower credit score of 400 and no good credit history. In such a case, Jessica has more good opportunities to bag the auto loan at lower interest rates, while Sam may not get an auto loan, and even if Sam manages the auto loan, the interest rates will be high.
FICO (Fair Isaac Corporation) and VantageScore are the two major credit scoring models used by lenders in the United States. While both aim to predict a borrower’s likelihood of repaying a debt, they use different methods and criteria to calculate scores, which is also why you may find different credit scores for yourself when you run a credit score check on both credit score models.
Understanding the difference between them can help you manage your credit and make informed financial decisions. Remember that it is up to the creditor to decide which credit scoring model they are interested in.
1. VantageScore and FICO Credit Scoring Models
1.1 FICO Scores
FICO scores have been around since 1989, and it is one of the most widely used credit scoring models in the industry. Most lenders prefer using this credit scoring model for loans and mortgages, as well as other industries, such as auto, to assess credit risk and make appropriate decisions.
FICO has developed industry-specific credit scoring models like Auto Score for car loans, Bankcard score for credit cards, and over 30 other such credit risk assessing models. These scores are tailored to predict risk more accurately for specific credit types. For example, the FICO Auto Score gives more weight to your auto loan payment history, helping you get scores that are need-specific.
Also Read: myFICO Review: The Best Credit Score Monitoring Tool?
1.2 VantageScore
VantageScore was created in 2006 by the three major credit bureaus—Equifax, Experian, and TransUnion—to provide a consistent scoring model. The latest versions, VantageScore 3.0 and 4.0, aim to be more inclusive, particularly for consumers with limited credit history. These scores can be generated with less credit history and more recent data, making them accessible to a broader range of consumers. For instance, VantageScore 4.0 uses trended data, which looks at patterns in your credit behavior over time, to provide a more comprehensive view of your creditworthiness.
2. Credit History and Account Reporting on Vantage and FICO Score
| Feature | FICO | VantageScore |
|---|---|---|
| Credit History | At least 6 months | As little as 1 month |
| Account Reporting | At least 1 account in 6 months | At least 1 account in 24 months |
FICO score requires a longer credit history to generate a credit score. So, if you are new to credit, it might take some time before you have enough data for a FICO score. This model looks for accounts that have been active for at least six months and have been reported to the credit bureaus within the past six months. With this conditioning, scores for future behavior can be predicted more accurately and are built on substantial credit history.
On the contrary, VantageScore is designed to score consumers with a shorter credit history. It can generate a score with as little as one month of credit history, making it accessible to consumers who are new to credit or have had limited credit activity. By lowering the threshold for generating a score, VantageScore aims to include more consumers in the credit scoring system, providing them with opportunities to build and improve their credit.
3. Factors: VantageScore vs FICO Score
Credit scores are calculated based on several factors, each weighted differently by FICO and VantageScore. Understanding these factors and their impact on your score is crucial for managing your credit effectively.
| Factor | FICO Weight | VantageScore Weight |
|---|---|---|
| Payment History | 35% | Moderately Important |
| Credit Utilization | 30% | Most Important |
| Length of Credit History | 15% | Moderately Important |
| New Credit | 10% | Moderately Important |
| Credit Mix | 10% | Moderately Important |
1. FICO Score
- Timely Payments: In the FICO score, timely payments are accountable up to 35%, and when done timely, you’ll have a chance to get a better credit score. On the other hand, if you have non-timely payments in your books, it will equally show damage to your FICO score.
- Credit Used: The percentage of credit used is accountable for up to 30% of your FICO score. If the credit used percentage is less, you will likely have a better FICO score, indicating a lot of funds are unused and easy to pay.
- Credit Age: The average duration of time someone has been using is considered credit age and accounts for up to 15% of the FICO score. In simple terms, The older, the better.
- Type of Credit: This is an important factor and holds up to 10% of FICO scores. Certain credits are not good for your FICO score, while a few types of credits do no harm.
- Credit Inquiries: If a lot of organizations or individuals are pulling your credit history, it leaves a negative mark on your FICO scores.
2. VantageScore
- Credit Utilization: VantageScore 4.0 uses trended data, which looks at your credit utilization patterns over time. This means that if you consistently pay down your balances over several months, it can positively impact your score. This is also the most significant factor when calculating VantageScore.
- Credit Mix and Age: VantageScore values a diverse credit mix and considers the average age of your accounts. A well-balanced mix of revolving credit (like credit cards) and installment loans (like mortgages) can improve your score.
- Payment History: While still important, payment history is not weighed as heavily in VantageScore as it is in FICO. VantageScore also considers rent and utility payments if they are reported, which can benefit consumers who have a limited traditional credit history.
- Trended Data: Trended data looks at your credit behavior over time, such as whether you pay your credit card balances in full or carry a balance from month to month. This provides a more comprehensive view of your credit management habits.
4. Credit Inquiries
When you apply for new credit, inquiries are made on your credit report. These inquiries can affect your credit score differently depending on whether they are hard or soft inquiries.
On FICO,
- Hard Inquiries: These occur when lenders check your credit report to make lending decisions. Hard inquiries can lower your score temporarily. However, FICO provides a 45-day window for rate shopping, such as for mortgages or auto loans, treating multiple inquiries within this period as a single inquiry. This encourages consumers to shop around for the best rates without fear of multiple inquiries harming their score.
- Soft Inquiries: These occur when you check your own credit or when lenders pre-approve you for offers. Soft inquiries do not affect your credit score.
On VantageScore,
- Hard Inquiries: Like FICO, VantageScore treats hard inquiries as potential risk indicators. However, it offers a shorter rate-shopping window of 14 days. All inquiries within this period for the same type of credit are treated as a single inquiry.
- Soft Inquiries: Similarly, soft inquiries do not impact your VantageScore. These inquiries are typically used for background checks, credit monitoring, and pre-approved offers.
Also Read: What is an Average Credit Score for Auto Loans
5. Newer Versions of FICO and VantageScore
FICO has introduced FICO 10 and FICO 10T, which focus on the trending credit behavior data over time. For example, if you have a habit of paying down your credit card balances each month, this positive behavior will be reflected in your score. Such data provides a more comprehensive view of your credit management habits.
VantageScore introduced VantageScore 4.0, which also focuses on trending data behavior for long-term credit utilization behavior. It evaluates how you manage your credit over time rather than just a snapshot of your current credit status. This can benefit consumers who consistently pay off their balances, as their responsible behavior is taken into account over a longer period.
6. Examples
Let’s try to understand VantageScore and FICO scores with examples to understand them better. For these examples, let’s look at two of the most crucial factors: Credit Utilization and Payment History.
Example 1: Joe’s Credit Utilization
Suppose Joe has two credit cards with a total credit of $10,000, and you are only using $2500.
FICO Score looks at your most recent balances and limits, and if you recently maxed out your credit cards, your utilization ratio would be high, negatively impacting your score. On the other hand, VantageScore 4.0 considers up to two years of credit utilization data. So, if you usually keep your balances low and only recently had a high balance, it might not impact your score as much.
Example 2: Richa’s Payment History
Suppose Richa missed a payment three years ago and is checking her credit score today.
FICO Score considers timely payments to be one of the highly valued factors. So, Richa can find a negative impact on her credit score even though it was three years ago, and this impact may diminish over the coming years as her credit history builds. On the other hand, on VantageScore, payment history is not considered a crucial factor, and a single missed payment might not impact your score as severely, especially if your overall history is positive.
Also Read: What is an Average Credit Score for Auto Loans
Pros and Cons of VantageScore and FICO Score
Pros and Cons of VantageScore
FICO Score Pros and Cons
Which is Better – VantageScore vs FICO Score? My Opinion
There can be no definitive answer on which is the better credit scoring model. However, if you are in a dilemma about which scoring model to pick, there are two crucial factors to consider.
The first and foremost factor is the credit history. FICO Score relies on payment history and accounts for up to 35% of it. While VantageScore works well even with a short credit history. So, you can use VantageScore when you use credit infrequently and have a shorter credit history. The second factor is what the lender prefers when evaluating your credit risk.
I would go with the FICO Score anyway, and there are two major reasons for this, especially as a lender. The first and foremost reason is that FICO offers more exact scores and is evaluated on more prominent calculations such as payment history, credit used, and more.
The second reason is it offers a version for a need-specific industry, such as a credit card, mortgage, or even an auto loan, which helps you work towards improving your credit scores in a directional approach. Also, FICO scores are popularly preferred by several industries and bank institutions, making it an optimal choice.
What to Do When Your Credit Score is Low?
If you have a low credit score on VantageScore or FICO Score, it is time you start building your credit history and work on improving your credit scores. Thankfully, Credit Repair Cloud is offering a free 5-day course on improving your credit scores and how to start a credit repair business.
Timely payments and credit utilization are two of the most important factors in improving your credit scores. It is also important to dispute negative entries from your credit report. A negative entry is a transaction on your credit report that you haven’t made or is no longer credible. Such transactions can be disputed and removed by sending dispute letters to the relevant credit bureaus: TransUnion, Equifax, and Experian. DisputeBee is one of the best dispute letter software that eases your disputing process, while Credit Repair Cloud is best at the enterprise level, such as when you have your own white-label credit repair business. Credit Repair Cloud offers the CloudMail feature, which automates the entire process and not just craft dispute letters.
Wrapping up: VantageScore vs FICO Score
This pretty much wraps up my comparison guide on VantageScore vs FICO Score and helps you pick a more personalized pick. However, remember, the pick relies a lot on what credit scoring model the lender prefers. If you are looking forward to improving your credit scores, you can check Start Repairing Credit Challenge from Credit Repair Cloud, which is a free 5-Day Credit Repair course that helps you fix your credit score and guides you on how you can start a SaaS credit repair business from scratch.
For more detailed information on VantageScore and FICO Score, you can visit resources like Forbes, Experian, Credit Karma, Equifax, and NerdWallet.
