In the U. S. , two companies dominate the credit scoring industry. Although VantageScore® has been gaining market share since its creation in 2006 by the three major credit reporting agencies, FICO® remains the industry leader. Both companies develop credit scores that lenders and creditors can use to evaluate applicants and manage customers accounts. However, VantageScore and the FICO® scoring models use slightly different criteria to determine your scores.
Ever checked your credit score and noticed a significant difference between your VantageScore and your FICO score? Don’t worry, you’re not alone. Many people find themselves in this situation, wondering why these two scores differ so much.
The answer lies in the different methodologies used to calculate these scores. While both VantageScore and FICO are widely used credit scoring models, they have distinct characteristics that can lead to discrepancies in your scores.
Understanding the Difference Between VantageScore and FICO
VantageScore is a relatively new credit scoring model developed by a consortium of the three major credit bureaus: Experian, Equifax, and TransUnion. It was introduced in 2006 and has gained popularity due to its accessibility and ease of understanding. VantageScore is often used by lenders for pre-qualification purposes and is readily available for free on many personal finance websites and apps.
FICO, on the other hand is the older and more established credit scoring model developed by the Fair Isaac Corporation. It has been the industry standard for decades and is used by most lenders for final credit decisions. FICO scores are not as readily available for free, and you may need to pay a fee to access them.
Key Differences in Scoring Methodologies
The main differences between VantageScore and FICO lie in their scoring methodologies:
- Data Considered: VantageScore considers a broader range of data than FICO, including information from your checking and savings accounts. FICO, on the other hand, focuses primarily on your credit history.
- Weighting of Factors: VantageScore and FICO assign different weights to various factors that influence your credit score. For example, VantageScore places more emphasis on recent credit activity, while FICO gives more weight to your overall credit history.
- Scoring Range: VantageScore and FICO have different scoring ranges. VantageScore ranges from 300 to 850, while FICO ranges from 300 to 850.
Reasons for Discrepancies in Scores
These differences in scoring methodologies can lead to discrepancies between your VantageScore and your FICO score. Here are some common reasons why your VantageScore might be higher than your FICO score:
- Recent Credit Activity: If you have recently opened new credit accounts or made significant changes to your credit utilization, your VantageScore may be higher than your FICO score. This is because VantageScore places more emphasis on recent credit activity.
- Limited Credit History: If you have a limited credit history, your VantageScore may be higher than your FICO score. This is because VantageScore is more forgiving of thin credit files.
- Inquiries: VantageScore counts multiple inquiries, even for different types of loans, within a 14-day period as a single inquiry. Multiple inquiries on your reports for the same type of loan or credit, spanning more than a 14-day period, may have a greater impact to your VantageScore® credit scores than to your FICO® scores.
- Closed Accounts: VantageScore considers closed accounts in its calculations, while FICO does not. This can give VantageScore a slight boost if you have a history of responsible credit card management.
Which Score Matters More?
While both VantageScore and FICO are important credit scoring models, FICO is generally considered more important by lenders when making credit decisions This is because FICO has a longer history and is more widely used by lenders.
However, VantageScore can still be a valuable tool for monitoring your credit health and understanding how your credit score is calculated. It can also be helpful for pre-qualification purposes, as some lenders use VantageScore for this.
Tips for Improving Your Credit Scores
Regardless of whether your VantageScore or FICO score is higher, there are steps you can take to improve both:
- Pay your bills on time: This is the most important factor in both VantageScore and FICO calculations.
- Keep your credit utilization low: Aim to use less than 30% of your available credit.
- Limit the number of new credit accounts you open: Each new credit inquiry can lower your score.
- Become an authorized user on a responsible credit card: This can help you build credit history without having to open a new account.
- Dispute any errors on your credit reports: Inaccurate information can negatively impact your credit score.
By following these tips, you can improve your credit scores and achieve your financial goals.
While it’s normal to see some discrepancies between your VantageScore and your FICO score, understanding the reasons behind these differences can help you better manage your credit health. Remember, FICO is generally considered more important by lenders, but VantageScore can still be a valuable tool for monitoring your credit and pre-qualification purposes. By taking steps to improve your credit scores, you can increase your chances of getting approved for loans and other forms of credit at favorable terms.
The Importance of Different Credit Scoring Factors
The scoring model and your overall credit profile will determine how a particular action affects your credit scores. However, when calculating a score, VantageScore and FICO® only take into account the data found in one of your credit reports, and they typically assign the same relative weights to the same kinds of data.
The main factors that impact your score can be separated into several categories:
- Payment history: Including late payments, missed payments, accounts in collections, debt defaults, and bankruptcy declarations
- Credit usage: The percentage of available credit you are currently using with your revolving credit accounts, such as credit cards, is known as your credit utilization rate. The total amount you owe on installment loans is also significant, though less so.
- Credit history length: How much credit account management experience you have
- Account types: Do you have any past experience opening and closing various credit accounts?
- Recent activity: Have you applied for any new accounts lately that resulted in hard inquiries?
FICO® and VantageScore may employ distinct methodologies in each category with regard to the utilization or ascription of particular data points. Three examples are how the scores treat revolving account balances (or credit utilization), collection accounts and hard inquiries.
Your utilization rate, which is essentially your total credit card balances divided by your credit limits on those accounts, can be a significant scoring factor, but most scores only take into account the balances and limits of your most recent reported revolving accounts. This shows how much available credit youre using.
VantageScore 4. 0 looks back and takes into account your usage patterns, including whether you typically pay the minimum amount due on your credit card or whether you pay the entire amount due. FICO® Score and other VantageScore models dont.
Collection accounts are handled differently depending on the type of account, whether it has been repaid, and the particular scoring model, even though unpaid collection accounts can lower your credit scores on both FICO® and VantageScore.
FICO® Score 9, for instance, disregards paid collection accounts and rates unpaid medical collections lower than other categories of unpaid collections. (Paid medical collection accounts are not included in the computation of credit scores because they are no longer listed on your credit reports. ) FICO® Score 8 does not distinguish between paid collection accounts that are present on your report and medical and non-medical collections. Both versions ignore collection accounts when the original accounts unpaid balance was under $100. If a medical collection account is for less than $500 or is less than 365 days past due, it will not appear on your credit report.
VantageScore 3. 0 and 4. 0 both ignore paid collection accounts and ignore even unpaid medical collection accounts, regardless of their balance.
When you apply for a new credit account, a hard inquiry is added to your credit report and can lower your credit scores (though usually for less than a year) However, the designers of scoring models are aware that comparing offers and options by applying for several loans is a wise move rather than a risky one.
VantageScore addresses this by deduplicating (or “deduping”) any inquiries that occur within a 14-day window. Your credit report may show seven new hard inquiries if you apply for a credit card today, a personal loan tomorrow, and five auto loans the following week. However, VantageScore will only count one hard inquiry during that time.
Older models of FICO® Scores, which include those still in use for mortgage lending, have a 14-day dedupe window, whereas more recent models have a 45-day window. However, FICO® Scores only dedupe multiple inquiries from student loan, auto loan and mortgage applications.
However, FICO® also features a hard-inquiry buffer, so your FICO® scores will remain unaffected by any hard inquiries you may have had in the last 30 days regarding mortgages, cars, or school loans.
VantageScore and FICO Create Multiple Credit Scores
VantageScore and FICO® create credit scoring models—software that can analyze a credit report to generate a credit score. Furthermore, the objective of the consumer risk scores generated by VantageScore and FICO® is the same: to forecast the probability that an individual will become at least 90 days delinquent on a bill within the next 24 months.
Both the base FICO® model and the VantageScore model are generic credit scores, which means that a variety of creditors, including card issuers, online lenders, and private student loan providers, can use them. In addition, FICO® generates industry-specific bankcard and auto scores that are customized for card issuers and auto lenders using the same methodology as the base FICO® scores.
Like other software, VantageScore and FICO® periodically update their scoring models to take into account new information, technology, and industry practices and to make sure they continue to be predictive in the face of shifting consumer behavior.
The first VantageScore model, version 1. 0, was launched in 2006; the company released the latest version, 4. 0, in 2017. The FICO® ScoreTM 8 (introduced in 2004) and FICO® Score 9 (introduced in 2014) are the most recent iterations of the FICO® base scoring model, which dates back to 1989. Creditors have the option of selecting a model to use or experimenting with several models to see which one works best for them in assessing risk with their specific clientele.
You might check your VantageScore and FICO® credit scores and wonder why theyre different. In part, its because the models give varying levels of importance to different parts of your credit report.
The Truth About FICO Score vs VantageScore – What’s the Difference?
FAQ
Why is my VantageScore so much higher than my FICO score?
Is Vantage more accurate than FICO?
How do I convert my VantageScore to FICO score?
Why is my FICO score lower than my?
Will my VantageScore always be higher than my FICO score?
That doesn’t necessarily mean that VantageScore will always be higher than your FICO score. For example, you may have recently applied for a new credit card, which will affect your FICO score slightly more than your VantageScore since new credit makes up 10% of your FICO score and 5% of your VantageScore.
Why is my credit score higher than my FICO score?
Your credit score calculated by one model can very well be higher than your score with another because of the differences in how VantageScore and FICO weigh certain factors. That doesn’t necessarily mean that VantageScore will always be higher than your FICO score.
Does VantageScore offer industry-specific credit scores?
Also know that, unlike FICO, VantageScore does not facilitate industry-specific credit scores. For example, FICO offers auto industry credit scores such as the FICO® Auto Score 9 for lenders issuing auto loans ,. There is no VantageScore equivalent. Do you have a good credit score or a not-so-great score?
What is VantageScore & FICO ®?
VantageScore and FICO ® create credit scoring models —software that can analyze a credit report to generate a credit score. And the consumer risk scores that VantageScore and FICO ® create have the same goal: to predict the likelihood that a person will fall at least 90 days behind on a bill within the next 24 months.