A credit score is an extremely important factor in financial wellness. A good credit score may allow you to take out favorable loans, finance furniture or big purchases, and generally enjoy greater financial flexibility. In contrast, a lower credit score can cut off your financing options significantly.
However, there’s no such thing as “one” credit score. In fact, your credit score may be displayed using the FICO Score or Vantage Score systems. Both scores are important, though they do include some key differences and use different criteria to assess different types of credit.
Not sure what those differences are? Today, let’s compare FICO vs. VantageScore in detail. We’ll also break down which credit score is used most frequently and which, if either, is better overall.
What Is FICO?
FICO Score is a frequently used credit scoring model. FICO was developed by the Fair Isaac Corporation. In a nutshell, the point of FICO Scores is to standardize credit reporting across the board. With the FICO Score, lenders and borrowers can rely on a broadly shared scoring system, enabling faster loan approvals, easier time seeing who qualifies for loans, and so on.
Although FICO Score is the widest used credit scoring system in the industry, it offers different credit scores for certain industries. Therefore, a mortgage lender might hypothetically see a different FICO Score compared to a credit card issuer.
In a nutshell, think of your FICO Score as a breakdown or summary of your total credit report. The FICO Score measures:
- How much credit a person has
- How long a person has had credit
- How much available credit is being used for personal loans or purchases
- The payment history of a person
- And more
As with VantageScore, FICO Score is primarily used by lenders to determine who they should loan money. FICO Score also helps individuals get fast access to credit when necessary. FICO scores are broadly calculated based on credit information, so people can improve their FICO Scores by paying their bills on time and making wise credit decisions.
What Is the FICO Credit Score Range?
FICO has different credit score ranges depending on the industry. Most consumers and lenders use the base FICO Score range, which goes from 300 to 850, with 300 being a very low credit score and 850 being a very high credit score. However, industry-specific scores for the FICO Score system can range from as low as 250 all the way up to 900.
While details can vary from place to place, a FICO credit score of 670 to 700 is considered “good” by most lenders.
How Does FICO Weigh Payment History?
Both FICO and VantageScore weight consumers’ payment histories differently, and late mortgage payments, total balances past their due date, unpaid collections, and other forms of debt can all affect your score differently. Generally, FICO weights payment history in their scoring criteria more than VantageScore, although this does depend on which industry scoring system is being utilized.
Overall, the FICO Score system weights five categories of information to derive a bottom line score for borrowers. These categories and weight ratios include:
- Payment history
- Level of debt or amounts owed in prime or subprime loans
- The age and length of credit history
- The types of credit used or credit mix
- Credit inquiries or new credit requests
For most borrowers and financial situations, FICO Score weighs payment history for 35% of the total score calculation. This is the single most important factor in one’s FICO credit score. Therefore, individuals can increase their FICO scores primarily by maintaining a consistent payment history (i.e. paying bills on time and avoiding late payments).
How Does FICO Weigh Debts and Payments Owed?
FICO Score also weights the level of debt a borrower has in addition to any payments owed. These factors combined make up 30% of the total FICO Score value. It’s the second most important factor for a borrower’s FICO Score.
The level of debt broadly includes all current debts or loans taken out under a borrower’s name. These include mortgages, personal loans, debt consolidation loans, student loans, and furniture loans.
How Does FICO Weigh Your Credit Mix?
The FICO Score further takes into account the age of a borrower’s credit score or the length of their total credit history. Therefore, individuals who have taken out loans or paid bills for several years will likely have higher credit scores than teenagers or individuals without any credit scores.
That’s one reason why credit building loans are available. These unique loans allow newcomers to the credit system to build up a credit history, thus enabling them to boost their FICO Scores and potentially get other lines of credit. This element of creditworthiness makes up 15% of the total FICO Score calculation.
How Does FICO Weigh Inquiries?
FICO Score weights credit inquiries or new credit requests at a rate of about 10%. This factor, while minor, can still impact one’s credit score significantly. That’s why it’s common for new borrowers to see their credit scores decrease when they take out a loan, have a credit check, or open a new credit card account.
For this reason, borrowers should not take out new credit lines unless necessary, particularly toward the beginning of their credit histories. However, FICO considers several hard credit inquiries to be part of the same inquiry within a 45-day window. Therefore, it’s beneficial to get lots of credit checks quickly rather than spread them out over a long time frame.
Aside from these factors, FICO Score weights the types of credit or credit mix as 10% of the total credit score. For example, borrowers will have higher FICO Scores if their loans are a mix of a mortgage loan, auto loan, home remodeling loan, and so on. Borrowers have lower scores if their loans are all of the same type (i.e. all personal loans or payday loans).
What Is Vantage?
The VantageScore is an alternative credit score system developed by all three major credit bureaus: Experian, Equifax, and TransUnion. The point of VantageScore is to predict how likely borrowers will repay borrowed money. Because of this, it is oftentimes used by financial institutions, lenders, landlords, and other organizations or individuals. Like the FICO Score, it’s primarily used to determine creditworthiness.
VantageScore was first used when the three credit bureaus developed an algorithm to compete against FICO. VantageScore originally used a different credit scale compared to FICO, but it was recently revised. Now VantageScore has the same 300 to 850 scale as FICO, presumably for ease-of-use and familiarity reasons.
What Is the Vantage Credit Score Range?
VantageScore’s credit range was originally different from FICO’s. It went from 501 to 990. However, VantageScore 3.0 and 4.0 now use the same basic 300 to 850 range as the classic FICO Score system.
Like with FICO Scores, a VantageScore of 700 or above is broadly considered “good credit” for lenders.
How Does Vantage Weigh Payment History?
Like FICO Score, VantageScore weights different elements of creditworthiness to come up with complete scores for borrowers. The VantageScore system uses six metrics to determine creditworthiness rather than the five leveraged by FICO. These are:
- Payment history
- Age and type of credit
- Percent of credit used
- Total debt or loan balances
- Recent credit inquiries or behavior
- Available credit total
The first element, payment history, also has the highest weight on one’s credit score. It comprises 40% of the total VantageScore system. Thus, the best way to improve one’s VantageScore is to make regular and consistent payments on time for bills, credit cards, and loans.
How Does Vantage Weigh Debts and Payments Owed?
VantageScore also weights debts and payments owed. These elements make up 11% of a total VantageScore rating. Generally, the more debt a person has or the higher their loan totals are, the lower their credit score will be.
Thus, VantageScore penalizes people for taking out massive loans regularly. Borrowers have higher scores if they refrain from taking out big loans or lines of credit unnecessarily.
How Does Vantage Weigh Your Credit Mix?
VantageScore weights credit mix, or the types of loans and credit used, with the age of credit score. These factors combined make up 21% of a borrower’s VantageScore. The type of credit is generally more important than the age of one’s credit score, meaning VantageScore may be higher for a new borrower than a FICO Score for the same person (provided they both take out a healthy mix of loans or credit).
How Does Vantage Weigh Inquiries?
Like FICO, VantageScore weights credit inquiries. But it combines this element with recent credit behavior, such as closed lines of credit, completely paid off debts, and more. So while opening new accounts or getting a credit check will still hurt one’s credit score, it won’t penalize it as much as it would a FICO Score.
Both credit inquiries and recent credit account behavior comprise 5% of the total VantageScore for a borrower. Note, however, that VantageScore treats several hard credit inquiries as one inquiry provided those inquiries occur within a 14-day window.
Other than these elements, the VantageScore model weights one’s credit by the percentage of total credit used or credit utilization rate. This makes up 20% of the current VantageScore. For instance, if a borrower has a new credit account or tradeline with a $1000 line of credit but only uses $100 on the credit card, they’ll have a higher score than a borrower who maxed out that credit card.
Available credit also makes up 3% of a borrower’s total VantageScore. Again, if a person has multiple lines of credit but uses them sparingly and doesn’t max them out, they’ll have a higher VantageScore than otherwise.
Which Credit Score Is Better?
Neither, although they may be used by different lenders for varying purposes. As noted earlier, the VantageScore system was developed by the credit bureaus on purpose to predict how likely borrowers are to repay loans.
That said, most lenders use the FICO Score system compared to the VantageScore system. This doesn’t mean that VantageScore is never used. In fact, quite the contrary. Lenders increasingly use both scores in order to determine credit worthiness for a potential borrower.
Therefore, both credit scores need to be kept up and increased from time to time. Fortunately, you can increase your credit score with both the FICO and VantageScore systems using several of the same techniques:
- Never take out unnecessary debts or lines of credit
- If you have one or more lines of credit, do not max them out. Say that you have a credit card with a total available balance of $5000. Do not make a purchase of $5000 and max out the credit card unless you absolutely have to. Instead, try to use the credit card sparingly and, once the credit card has a balance, pay it off in full by the end of the next payment cycle
- Pay all of your bills, including utility bills, mortgage payments, and other loan debts on time and in full. You can make the minimum payment and see increases in your credit score. But paying off any loans more quickly than necessary will likely result in faster credit score increases
By practicing these strategies, you will show lenders and financial institutions that you are a responsible borrower. Your FICO Score and VantageScore credit scores will likely be high across the board.
If you don’t have a lot of credit or any credit to speak of, use a credit building loan to get started. Take out small debts or get a low-balance credit card and make moderate purchases, then pay them off.
Is There One Credit Score That All Lenders Look At?
As noted, the FICO Score is used more on a day-to-day basis because it is more well-known to lenders and it has been around longer. But the VantageScore is also looked at frequently, especially by lenders like mortgage lenders or other institutions who handle big purchases and loans.
Don’t disregard one credit score system for the other.
What’s The Bottom Line?
Ultimately, both FICO and VantageScore are important to understand and improve with time. That’s why it’s important to know what loans you take out, when it’s wise to finance purchases, and more.
At Becca’s Home, you can purchase the perfect furniture for your house without taking out debt or utilizing limited credit. You can make affordable monthly payments or even purchase your furniture early if you come into some extra cash.
Want to know more or check out our furniture selections? Visit Becca’s Home today!
Sources:
What is a FICO Score and why is it important? | myFICO
What Is a VantageScore? | NerdWallet
The Difference Between VantageScore and FICO® Scores | Experian
