What is the first thing that comes into your mind when you think of a credit score?
Let me guess, you probably think FICO.
The FICO scoring system was introduced by Fair Isaac Corporation in 1989.
Since then, FICO scores have served their way into almost all kinds of mortgages, rentals or credit cards and lending decisions
The scoring system became so popular that, “What is my FICO score?” had almost become the most commonly asked question in the previous years, until its superiority and authority in the market was challenged by a new comer called VantageScore.
VantageScore, like FICO, uses almost similar scoring methods, however there’s a slighter difference in the results generated by both the scoring models.
Why use these scoring models?
Tenant screening is considered essential and necessary in the western world. A lot of property managers and landlords hire tenant screening companies to check on the client interested in the property or estate. The whole process has many stages, but they all lead to the financial validity of the client worthy of the property.
The best way to scrutinize these companies is to have a financial rundown on them, elaborate their credit worthiness and judge their assets. While the market is filled with age-old scrutiny methods to modern tests, Vantage scores and FICO scores have certainly been regarded as the market’s favorites and naturally adopted by all major stakeholders for financial judgments. An individual’s FICO or Vantage rating is a measurement utilized basically to survey his or her dependability.
The most regular scoring frameworks that you’ll hear about would be FICO and Vantagescore.
VantageScore vs. FICO: What’s the difference?
In a nutshell, VantageScore solution and FICO both generate credit-scoring models, and both are accurate. They both use a consumer’s credit data to generate scores. These scoring models are mainly used by landlords, credit card issuers and lenders.
What do these credit scores do?
These scores are a three digital number that speculate a consumer’s ability to repay a debt. Both these scoring models use a different method to calculate scores, which may result in a slight difference in scores, however both these models are accurate and widely used.
So how these two models are different from each other and do these differences really matter?
Of course, NOT! But you still might want to know how these two scoring modules work for different needs or goals.
Hence, in this post, we will mainly be discussing the major differences between the two scoring models.
So without any further ado, let’s discuss the six main differences between FICO and VantageScore and let’s see which one you may find favorable and which one to watch for.
1. Consider much of the same information, but gather data in different ways.
First of all, let’s establish this, FICO and VantageScore are considered the most reliable and commonly used scoring models, likely to be used by anyone.
However, they are not the only scoring models that screening companies are likely to use in the market. They use a plethora of different scoring methods to determine an individual’s creditworthiness to base a financial decision.
FICO and VantageScore rate you on the basis of the following basic criteria:
- Your history of Payment.
- Types of credit
- Your usage of credit.
- Your Length of credit
- latest inquiries
Although both FICO and VantageScore both gather data in a similar fashion, yet the results generated are different.
The basis of FICO’s scoring model is from the credit reports of its consumers. However, they finalize these reports by making investigations of the anonymous consumer data and on the basis of reports collected from the three major credit bureaus to generate a precise scoring model
On the other hand, VantageScore comes up with a single formula based on the consumer history of credit files obtained by those similar three credit bureaus to generate a single scoring formula.
The interesting thing to notice here is both scoring models issue similar scores ranging from 300 to 850. However, in the past, the scoring ranges of VantageScore used 501 to 990, which was later on updated in 2013.
Additionally, the lenders and consumers find implementing Vantagescore model easier due to the fact that its numerical ranking now matches FICO’s which makes it super easy and less confusing to check scores from both FICO and Vantagescore.
2. Takes less time to establish a Vantagescore
In case of VantageScore, it takes a relatively short span of time to generate score than FICO score. Reason being Vantagescore takes into consideration even just a month or two of a consumer’s history of opening a credit account.
In contrast, the FICO score is rigid and strictly take into consideration a consumer’s credit history of minimum six months.
3. Inconsistency in scoring requirements
Vantage Scores require you to have just one month, and at least one account reported to one of the credit reporting agencies in the last two years. So, it is mostly based on the past 24 months of the consumer’s borrowing history. On the other hand, FICO scores require a prolonged account history of the consumer with detailed transactions. Consumer can have an advantage with Vantage Scores in recent financial history is good. Also, the FICO scores are so relevant that No FICO score is worse than a bad financial history of a customer. With inconsistencies from the FICO score, the big three credit bureaus came up with the Vantage Score so that they could report more consistently to lenders about a borrower’s credit worthiness.
Furthermore, a FICO score cannot generate result on limited history as it needs considerable dataset in contrast to Vantage Scores. In case of a typical Vantage score, lesser the financial history of the consumer more accurate the result.
4. Late payment are treated differently
Having a history of late payments? Then it’s a big no from both the scoring models and is going to negatively impact both of your FICO and Vantagescores.
However, FICO treats all the late payments in a similar fashion, but Vantagescore treats late payments differently. It penalizes the late mortgage payments vigorously than any other kind of credit.
5. Different impact of credit inquiries
Did you know every time you apply for a credit, there’s a hard inquiry done on you from a lender to check your credit worthiness?
That’s why it’s recommended not to open too many credit cards in a short span of time. Vintage and Nick both do “deduplication” and penalize a consumer with a history of multiple hard inquires.
FICO reduplicated your credit inquires within a span of 45 days; however, Vantagescore takes as little than 14 days ranges. Vantage considers multiple hard inquiries for all types of inquiries, which also includes credit cards. However, FICO only considers student loans, auto loans and mortgages.
But relax, inquires probably shouldn’t be your biggest concern, when it comes to credit score, however, they may impact you negatively to certain extent.
Bonus tip: Avoid hard inquires as much as you can if your future plans include buying a house or anything big, keep clean in order to avoid lowering your credit score.
6. Different criteria for low- balance collection
Another similarity is both VantageScore and FICO penalizes accounts that have been in default and sent to collection agencies.
However, FICO might be a little lenient when it comes to low-amount collection accounts. Where there was a current balance of $100, FICO easily ignored all collections. VintageScore, on the other hand, only ignores paid collection accounts, irrespective of their current balance.
Our recommendation to keep your credit score high
Follow the below points to keep your credit score high.
- Make sure to observe timely payments.
- Do not use your entire credit limit and keep your outstanding balances low to get a good credit score.
- Check your accounts regularly so that no payment is missed at the end of the month either by you.
- Keep continuous track of your credit score and its history. In a good scenario, also predict your future credit score as well.
- Maintain a balanced combination of secured and unsecured loans rather than having too many unsecured loans. It will help you improve your credit score.
So that was our brief review of the two scoring models, feel free to go with the one that goes with your goals, but a basic rule of thumb remains the same: timely pay your bills and keep balances on lower side. And always keep in mind that utilizing too much of your credit limit or paying late, can lead to lowering your score.
Which scoring model have you used? We would love to hear about it!