Difference Between FICO and VantageScore
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When it comes to understanding credit scores, two names often come up: FICO and VantageScore. Both play a crucial role in determining an individual’s creditworthiness, yet they have significant differences in their calculation methods, scoring ranges, and uses. This article dives into these differences to help you understand which score is more relevant to your financial decisions.
What is a Credit Score?
A credit score is a three-digit number that lenders use to evaluate an individual’s credit risk. It reflects how likely a borrower is to repay their debts based on their credit history. Credit scores start from 300 to 850, with higher scores indicating better creditworthiness.
Understanding FICO Scores
Overview of FICO
Developed by the Fair Isaac Corporation (FICO) in 1989, the FICO score is one of the most widely used credit scoring models in the United States. Approximately 90% of lenders rely on FICO scores to make lending decisions.
Scoring Ranges
FICO scores range from 300 to 850. The categories are generally divided as follows:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Excellent
Factors Influencing FICO Scores
FICO scores consider five main factors:
- Payment History (35%): Your history of on-time payments significantly impacts your score.
- Credit Utilization (30%): This measures the amount of credit you are using compared to your total available credit.
- Length of Credit History (15%): A longer credit history can positively influence your score.
- Types of Credit in Use (10%): Having a mix of credit types (e.g., credit cards, mortgages) can benefit your score.
- New Credit (10%): Opening several new accounts in a short period can lower your score.
Understanding VantageScore
Overview of VantageScore
VantageScore was introduced in 2006 by the three major credit bureaus—Experian, TransUnion, and Equifax. Designed as a competitor to FICO, VantageScore aims to provide a more inclusive scoring model by considering a broader range of consumer behaviours.
Scoring Ranges
VantageScore also ranges from 300 to 850, but it has different categories:
- 300-499: Very Poor
- 500-600: Poor
- 601-660: Fair
- 661-780: Good
- 781-850: Excellent
Factors Influencing VantageScore
VantageScore also considers various factors, but it uses a different weighting system:
- Payment History (40%): Similar to FICO, but more emphasis is placed on recent payments.
- Credit Utilization (20%): This also focuses on the ratio of credit used to total credit available.
- Credit History Depth (21%): Considers the age of accounts and how long credit has been established.
- Recent Credit Behavior (10%): This factor weighs recent credit inquiries and account openings.
- Types of Credit Used (9%): Like FICO, having a mix of credit types can positively impact your score.
Key Differences Between FICO and VantageScore
1. Scoring Models
While both FICO and VantageScore share the same scoring range, their categorization differs. FICO tends to be more conservative, while VantageScore uses a broader range for ratings.
2. Weighting of Factors
The two scoring models prioritize different factors. For instance, payment history has a more significant weight in VantageScore, while FICO places greater emphasis on credit utilization.
3. Availability
FICO scores are widely used in lending decisions, whereas VantageScore is growing in popularity but is not as universally accepted. Some lenders may use one model over the other, so it’s essential to know which score you are working with.
4. Credit History Requirements
VantageScore can generate a score for individuals with limited credit histories, even if they have only one credit account. In contrast, FICO usually requires a more extensive credit history.
Which Score Should You Monitor?
Both scores provide valuable insights into your creditworthiness. However, if you are applying for a loan or mortgage, it’s wise to check your FICO score since most lenders use it. On the other hand, VantageScore can offer a good general picture of your credit health, especially if you have a shorter credit history.
Conclusion
Understanding the differences between FICO and VantageScore is crucial for making informed financial decisions. By monitoring both scores, you can gain a comprehensive view of your credit health and take steps to improve your creditworthiness over time.
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