In an era where credit scores are essential to secure loans, mortgages, or even lease apartments, understanding and managing your scores is crucial. Two of the most popular credit scoring models used to gauge your creditworthiness are the FICO score and the VantageScore. This article compares these models, their similarities and differences, and factors affecting your scores. We’ll also guide you with valuable tips and strategies to improve your credit scores and maintain a healthy credit rating.
Table of Contents:
- Understanding FICO Scores and VantageScores
- Comparing FICO, FICO 10, FICO 10T, and VantageScores
- FICO Scores, FICO 10 and FICO 10T
- Contrasting FICO / VantageScores
- Factors Influencing Your Credit Scores
- Tips for Influencing Your Credit Scores
- Application Tips for Better Approval Odds
- Frequently Asked Questions (FAQs)
Understanding FICO Scores vs VantageScores
Let’s start with a quick overview of FICO and VantageScore and what determines these scores.
FICO (Fair Isaac Corporation) Scores are the leading credit scoring models in the United States, with a score range of 300-850 – higher scores indicating better creditworthiness. FICO scores are used in over 90% of lending decisions. Several FICO score versions exist, with FICO 8 being the most commonly used by lenders and FICO 9 also being widely used.
It’s important to realize, though, that different types of lenders use different credit score versions. For instance, a mortgage company might use FICO 2 or FICO 4, whereas a car lender might use either of those versions or FICO 5 or FICO 8. At the same time, a given lender might not use FICO scores at all but opt for VantageScores instead.
FICO Scores, FICO 10 and FICO 10T
In recent years, however, two newer versions have been introduced: FICO 10 and FICO 10T. Both versions place an increased emphasis on personal loans and consider the same five factors as previous FICO models:
Payment history (35%)
Credit utilization (30%)
Length of credit history (15%)
New credit inquiries (10%)
Credit mix (10%)
What sets FICO 10T apart is its “trended data” feature. It takes a historical view of data, such as credit card balances over the past 24 months, to assess credit risk more accurately.
VantageScore is a more recent credit scoring model launched in 2006 by the three major credit bureaus – Equifax, Experian, and TransUnion. Like FICO scores, VantageScore ranges from 300 to 850. Its calculation slightly varies from FICO scores, with six factors considered:
Payment history (41%)
Credit utilization (20%)
Debt balances (20%)
Length of credit history (11%)
New credit inquiries (5%)
Credit mix (3%)
Contrasting FICO, FICO 10, FICO 10T, and VantageScores
Despite stemming from the same credit report data, the calculation of credit scores differs between FICO, FICO 10, FICO 10T, and VantageScores. Here are some key differences:
Weighting of Score Calculation
While FICO and VantageScores consider similar factors, each assigns different weights to these factors. The most substantial impacts on FICO scores come from payment history, credit utilization, and credit length. In contrast, VantageScores prioritize payment history, debt balances, and credit utilization.
Generational Differences in Credit Scoring
While FICO 8 and FICO 9 are currently widespread, some lenders are adopting the latest versions, FICO 10 and FICO 10T. Likewise, VantageScore 4.0 is gaining in adoption too. For example, Both FICO10T and VantageScore 4.0 were recently approved by the Federal Housing Finance Agency for use by Fannie Mae and Freddie Mac in the mortgage market.
Scoring for Individuals with Limited Credit History
VantageScore can generate a credit score for those with a shorter credit history or limited credit activity, while FICO scores require at least six months of credit history for score generation. This is particularly helpful for those just starting out in the world of credit, like young adults, or even individuals new to America, such as recent immigrants who haven’t yet established credit in the United States.
Factors Influencing Your Credit Scores
Having a grasp of FICO, FICO 10, FICO 10T, and Vantage scores, let’s delve into factors that can affect your credit scores.
Late or Missed Payments
Both FICO and Vantage scores heavily weigh payment history. Late or missed payments can adversely affect your credit scores, with severity depending on overdue amounts and the tardiness of the payment.
High Credit Utilization
Maximizing your available credit can damage your credit scores. Experts recommend maintaining your credit utilization under 30% for a healthy credit standing.
Short Credit History
A longer credit history generally yields better credit scores, demonstrating consistent and responsible credit usage. Starting to build a credit history early is vital for good credit scores.
Applying for New Credit
Applications for new credit result in a hard inquiry on your credit report, which can dip your credit scores. However, this impact is temporary and shouldn’t be a major cause for concern.
Large debt balances can negatively affect your credit scores, especially if they form a significant portion of your income. Reducing your overall debt can help enhance your credit scores.
Tips for Boosting Your Credit Scores
Here are some strategies to help you improve your FICO scores and VantageScores:
Consistently pay your bills on time.
Keep your credit card balances low and pay off high-interest debts to reduce your credit utilization rate.
Maintain a diverse credit mix.
Avoid applying for too many credit accounts at once to limit hard inquiries.
Regularly review your credit reports for errors or inaccuracies.
Consumer groups say many credit files contain mistakes and you don’t want erroneous or outdated information to jeopardize your credit score or a loan you need.
Tracking Your Credit Scores
Monitoring your credit scores regularly can offer an accurate depiction of your financial health and help identify areas needing improvement. Numerous websites and financial institutions provide free credit monitoring services, helping you stay abreast with your credit scores and reports.
Remember, monitoring both FICO and VantageScores is crucial, as lenders could use either scoring model to evaluate your creditworthiness. Regularly checking both scores will ensure an accurate understanding of your credit standing.
Application Tips for Better Approval Odds
If you’re applying for new credit, several strategies can enhance your chances of approval:
Understand the credit scores and standards preferred by the lender before you apply.
Work on improving your credit scores if they’re low, before submitting an application.
Review the credit product’s requirements and ensure you meet them before applying.
Avoid applying for multiple credit accounts simultaneously to prevent multiple hard inquiries on your credit report.
Frequently Asked Questions (FAQs)
Which credit score is better – FICO or VantageScore?
Neither score is intrinsically better, as both gauge your creditworthiness. However, FICO scores, are more widely used by lenders. Still, it’s essential to monitor your VantageScore for a comprehensive understanding of your credit standing.
Do all lenders use the same credit score?
Different lenders may use different credit scoring models or versions within the same model. So, it’s smart to keep track of both your FICO and VantageScores and understand the specific requirements of lenders before applying for credit.
How can I quickly improve my credit score?
While some strategies can result in a swift improvement, typically, building and maintaining a good credit score requires time and consistent effort. Continuous monitoring of your credit scores, responsible financial practices, and timely payments are essential for long-term credit management.
To sum up, understanding and managing your FICO, FICO 10, FICO 10T, and VantageScores is an essential aspect of maintaining a healthy financial life. By consistently monitoring your scores, adopting strategies to improve them, and being aware of the factors affecting your credit standing, you can enhance your credit rating and better reach your financial goals.vs