There are two companies dominating the credit scoring industry in the US. FICO has the widest coverage and has burrowed its way through almost every kind of lending decision, most prevalently in mortgages, credit cards, and rentals. While it is true that FICO has established its dominance in the market, over the last decade, it has been challenged by the new VantageScore.
VantageScore is a result of a collaboration between the three major Credit Reporting Agencies (CRAs)- Experian, Equifax, and TransUnion. While the algorithms used to determine the credit score between FICO and VantageScore are very similar, the results are slightly different. VantageScore was created as a more predictive scoring model that is easy to understand and apply.
Although both the FICO and VantageScore are designed with the consumer in mind; to help them predict his/her ability to repay a debt, they have a very different method by which they treat credit data. Both FICO and VantageScore use data obtained from consumer credit reports to generate a credit score, however, the data from the reports will affect credit differently depending on the model used. VantageScore, it groups the credit information into six different categories. These categories vary in the way they influence your scores;
- Payment History: Extremely Influential
- Age and type of credit: Highly Influential.
- Percentage of credit limit used: Highly Influential.
- Total Balances and Debts: Moderately influential.
- Recent Credit behavior and Inquiries: Less Influential.
- Available Credit: Less Influential.
On the other hand, FICO has five basic categories;
- Payment History: represents 35%
- Amount Owed: represents 30%
- Length of Credit History: represents 15%
- New Credit: Represents 10%
- Credit Mix: Represents 10%
Of importance to note is that the exact impact of a specific category will vary significantly depending on your individual credit history and the specific credit scoring model used.
Differences between VantageScore and FICO
Length of Credit History Required
In order for a consumer to have a FICO score, they need to have one or more accounts that have been active for at least six months and at least one account that has reported to the credit bureaus within the last 6 months. Without these accounts, FICO will not generate your scores.
On the other hand, VantageScore doesn’t require a consumer to have an active account for a longer period of time as in the case with FICO. In fact, VantageScore models will use data of just one month and the data reported within the previous 24 months. As such, if you want a new credit, you may not have FICO scores but you will have the VantageScore.
Scoring Ranges
Both VantageScore and FICO assume that the higher the score, the less likely you are to miss a payment, and therefore, creditors will be more willing to offer you the best rates and terms. FICO bases its scores between 300 to 850, but the industry-specific scores will range from 250 to 900.
The first two versions of VantageScore ranged from 501 to 990, but the latest VantageScore 3.0 and 4.0 use the same 300-to-850 range as base FICO Scores.
Tax Liens and Civil Judgments
In 2017, there were certain changes that were made to the public-record reporting requirements. These changes effectively changed how and what information was sent to the consumer credit bureaus, leading them to eliminate tax liens and civil judgments from the consumer’s credit reports. In response to these changes, tax liens aren’t weighted as heavily, but they will still have a significant impact, in the latest VantageScore 4.0.
Credit Utilization
Your credit utilization can be a determining factor in what scores will be assigned to you. However, most scores will only consider your most recently reported revolving account balances and limits in this factor. This is essentially your total credit card balances divided by your credit limits on those accounts. This will show how much credit is you are using. With VantageScore 4.0, it will consider your trended utilization. This shows whether you usually only make minimum credit card payments or pay your bill in full. The FICO Score and other VantageScore models don’t.
Collection Accounts
Both VantageScore and FICO scores are significantly affected by collections accounts. These are treated differently depending on the type of account, whether it’s been repaid and the specific scoring model used. For instance, FICO Score 9 will ignore paid collection accounts and put less emphasis on the unpaid medical collections than other types of unpaid collections. FICO Score 8 will not differentiate between medical and non-medical collections and doesn’t also ignore unpaid collection accounts. Both versions ignore collection accounts when the original account’s unpaid balance was under $100.
Both VantageScore 3.0 and 4.0 ignore paid collection accounts and give less weight to the medical collections, however, there is no exemption for low balance collections.
Credit Inquiries
A hard Inquiry gets added to your credit report when a person applies for a new credit account. This will hurt your credit scores. However, the creators of the scoring models understand that applying for multiple loans so you can compare your options offers is savvy rather than a risky behavior.
VantageScore addresses this issue by deduplicating any inquiries that occur within a 14-day period. This means, assuming that you apply for a credit card today, a personal loan tomorrow and an auto loan next week, you may have seven new hard inquires on your report. However, VantageScore will score as if you had just one hard inquiry. The most recent FICO Score models have a 45-day dedupe window, while the older models have a 14-day dedupe window. It is important that you understand that FICO Scores only dedupe multiple inquiries from student loans, to auto loans to mortgage applications. In addition, FICO has a hard inquiry buffer which means any loan hard inquiries from the previous 30 days will not impact your FICO Scores.
Is Your Credit Score the Same At All Three Major Credit Reporting Bureaus
NO. your credit score is probably not the same at all the three major credit reporting bureaus. the reason is that lenders do not always report to the three major CRAs. additionally, they submit your information at different times, as such, your scores may slightly vary from one company to the other.
What’s Next
Credit scores are a critical factor in determining the consumer’s ability to qualify and get a loan, but you should not get caught up in the numbers. Today’s lenders are bombarded with a myriad of options when it comes to the specific scores they may choose to use, as such, rather than getting caught up in the numbers, it would be best to monitor how your scores change overall as you use credit responsibly. Pay your bills on time, reduce your debt and get new credit only when it is necessary, this way you will be able to establish a solid credit history.
