Vantage Score vs FICO: How Are They Different?
Vantage Score and Fico are two different credit scoring methods. They have evolved over the past years and are now serving different purposes. You should know the difference between these two credit score profilers, if you want to manage your credit score well and have a healthy wallet.
Introduction
Your credit score is one of the most important numbers to check, especially when you handle your own personal finances. This score is derived from the lender’s scoring models, using formulas to calculate a person’s creditworthiness. Today, there are hundreds of different scoring models in use but we will be digging deep into these two credit-scoring models: Vantage Score and FICO.
In this post, we are hoping to shed some light on the similarities and differences of Vantage Score vs FICO credit-scoring models. Your credit score determines interest rates such as your auto loan, mortgage, and insurance rates. It might also be a deciding factor in your job application. So, for your wallet’s sake, it is vital that you understand how similar or different they are from each other.
What Is FICO?
FICO, also known as Fair Isaac Corporation, was established in 1958 and its very first credit bureau risk score was launched in 1981. By 1991, the scoring system was made available to the largest credit bureaus in the country. Since that time, the FICO scoring model has become the industry standard used by many lenders when they assess a person’s credit risk.
The FICO scoring system is commonly used when assessing credit risk for major purchases including car loans and home mortgages. It is also widely used for other kinds of loans and credit, as well. When you think of FICO, you might already be familiar with its 3-digit number, which can range from 300 up to 850. However, it should be noted that a newer version is up to 950.
A credit score of 300 is the “poor” or low end while the credit score of 850 is the “excellent” or high end. A credit score above 670 is considered good and if your score is within this range, you might get your loan approved, as well as get reasonable or low interest rates. However, if it’s below 670, it might be difficult for you to get a loan at a reasonable interest rate.
The FICO scoring system is broken down into five categories:
- Payment history (35%) – The payment history determines the history of repaying your debts. To get a good credit score, the repayment of your debts must be always on time and in full amount.
- Amounts owed (30%) – This is the ratio of your available credit compared to the amount of credit you have already used.
- Length of credit history (15%) – The length of credit history measures how long you have had active credit accounts.
- New credit (10%) – This determines how much new credit you have applied for.
- Credit mix (10%) – This determines the mix of credit you currently have, including car loan, credit cards, and student loan, among others.
As you may have noticed, your payment history is the factor that matters the most in the FICO scoring system. With this fact, it would be in your best interest to be able to make your repayments in full and on time. As it makes up 35% of your FICO score, it is very important that you make it a priority. After all, it determines whether you can get low interest rates or not.
What Is Vantage Score?
Established in 2006, Vantage Score is a scoring system that aims to provide a far more consumer-friendly alternative to the FICO credit-scoring model. It was created by these three credit bureaus: TransUnion, Equifax, and Experian. The way Vantage Score works are that it considers non-conventional information, giving less value to some factors, compared to the FICO system.
As with the FICO scoring model, Vantage Score also has three digits and its latest version has the range of 300 to 850. Another similarity with the FICO is that Vantage Score’s lower end represents poor credit score and the higher end represents an excellent credit score. In addition, it is broken down into 6 categories to calculate the credit score, which includes the following:
- Payment history – Like the FICO system, your payment history refers to your history of paying your debts, which should be on time and in full amount.
- Age and type of credit – These both refer to the length of your credit history, as well as the mix of your credit.
- Percent of credit limited used – Similar to the “amounts owed” category in the FICO system, it is the ratio of the available credit to used credit.
- Total balances – It is your total debt, both delinquent and current.
- Recent behavior – Similar to the “new credit” category in the FICO system, it is how much new credit you have applied for.
- Available credit – As the name suggests, it represents your available or unused credit line.
Just like the FICO scoring system, it is vital that you make your repayments in full and on time. However, you should be aware that the percentage of your credit limit is one of the most important factors that determine your credit score. In addition, it is advisable that you keep the ratio in the recommended 30% or lower range.
Vantage Score vs FICO: The Similarities
Before we proceed with the discussion on the differences between FICO and Vantage Score, it is important that you also know how similar they are to each other. Even though both provide calculations for your credit score, the result can be a lot different from each other. This is also true even if they both use the same data from different credit reporting agencies.
Range Of Assessment
Both FICO and Vantage Score commonly use the range of 300 to 850 to assess a person’s credit score. However, it is noteworthy that older versions of Vantage Score, specifically 1.0 and 2.0, used a range of 500 up to 990. In addition, some FICO scoring systems often have a broader range, depending on the industry.
Data Derivation
Both FICO and Vantage Score use the data derived from Experian, Equifax, or TransUnion credit reports.
Use By Lenders
Both FICO and Vantage Score are being used by lenders, specifically to determine a potential customer’s credit risk.
Even though these similarities are not at all “similar”, both credit-scoring models are used to determine the credit risk. In fact, 90% of the lenders are likely to rely on the FICO system instead of the Vantage Score system to make their lending decisions. To add, while they use the same data, how they calculate the score is wildly different from each other.
Vantage Score vs FICO: The Differences
In this section, we will be providing you with an inside look at the differences between the two credit-scoring models. While they usually do not affect you as a consumer, you still might want to know their distinctions, as both provide different scores for various goals or needs. Now, let’s talk about the five main differences between the FICO and Vantage Score:
Scoring Models
It’s true, FICO and Vantage Score are not the only credit-scoring models in use now. In fact, lenders utilize a multitude of scoring systems to be able to determine your creditworthiness and then make important financial decisions. However, despite the several alternatives, Vantage Score and FICO are likely the ones you will encounter.
As discussed in the earlier sections, both FICO and Vantage Score use the same criteria: payment history, types of credit, length of credit, recent inquiries, and credit usage. While they both consider the same data, the way they gather it differs a lot. FICO uses credit reports from over a million consumers while Vantage Score uses a combined set of customer credit files.
FICO gather credit reports from the top 3 credit bureaus and analyze anonymous consumer data, and then come up with an accurate credit-scoring model. Alternatively, the way Vantage Score does it is that they obtain the data from the same credit bureaus, use the combined reports, and finally come up with just one formula to determine the credit score.
Both scoring systems generate scores that range from 300 to 850. In 2013, Vantage Score matched FICO’s range, after the previous one that is from 501 to 990. This change was a great thing for lenders and consumers, as it allowed them to implement the Vantage Score scoring system easily. To add, it was less confusing for the consumers who check their FICO and Vantage Score.
Importance Of Late Payments
As mentioned, payment history plays a major role both to your Vantage Score and FICO scores. Both credit-scoring systems consider the following factors: how recent the last late payment took place, how many accounts had late payments, and how many payments have you missed on an account.
While FICO gives the same treatment to all late payments, Vantage Score, on the other hand, judges them a little differently. With Vantage Score, it has a harsher penalty on late mortgage payments more than any other type of credit. To sum, you may still have a higher FICO credit score than Vantage Score even if you have late mortgage payments.
Impact Of Credit Inquiries
You probably already know this but it is not advisable to open too many credit card accounts in a short period. A reason is that every single time that you apply for a credit card, the lender performs a “hard inquiry” to evaluate your creditworthiness. Both FICO and Vantage Score impose a penalty on consumers who do this, as well as deduplication.
If you are not yet familiar, deduplication is very important, especially for auto loans, wherein your application might be sent to other lenders, which results in multiple inquiries. You should be aware that both scoring systems will never count these applications separately. Instead, they do the process of deduplication or the easier route, consider them as one inquiry.
The timespan FICO and Vantage Score use for deduplication is different from each other. FICO uses 45 days to deduplicate your inquiries while Vantage Score only uses 14 days. It should be noted, however, that while these inquiries are your main concern, they still do have an impact. With this, you must restrict hard inquiries to be able to avoid getting a low credit score.
Impact Of Low Balance Collections
Both FICO and Vantage Score impose penalties on consumers whose accounts have been sent to collection agencies. However, FICO is more forgiving in terms of low-balance collection accounts. FICO just ignores the collections if the balance is below $100 while Vantage Score only ignores paid collection accounts, without taking into consideration the original balance amount.
Summary
It would be in your best interests if you check your credit report annually. Not only because you want to know what your credit score is, but to also catch if there are errors. In addition, while there are numerous credit-scoring systems out there, knowing the basics of the two most common types will be able to help you earn or keep your credit in good standing.
As mentioned multiple times in this article, making all your payments in full and on times goes a long way in keeping both your FICO and Vantage Score numbers on the positive. To add, you might want to consider not maxing out your credit cards and keep your balance to less than 30%. Lastly, apply for a new credit only when you need to.
Have you learned something from this article? We will be delighted to hear some thoughts from you. Leave your comments below, and we will surely entertain them. Don’t forget to hit like and share this post as well. Happy reading everyone!
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