Credit Scores: FICO vs. VantageScore Models

Imagine you’ve worked diligently to increase your credit score as you prepare to buy a new car. You check your score one last time online before you apply. Then, the lender pulls your credit, and it’s an entirely different number. How can that be?

It can be frustrating, for sure, but it’s not out of the ordinary. While most online credit score platforms use one credit scoring model, lenders often use another. These credit scoring models are very similar in how they calculate scores, but key differences do exist that can affect the outcomes.

In this blog, we’ll explain the two most common credit scoring models, highlight their differences, and provide guidance on how to maximize your overall score.

The Basics of Credit Scores

It’s no secret that your credit score plays a significant role in adulthood. It helps determine whether you’ll be approved for a loan, how much interest you’ll pay, and the general terms of the loan. It can also influence decisions, such as being approved to lease an apartment, having utility deposits waived, and being accepted for certain jobs.

Your credit score is a three-digit number between 300 and 850. It provides a simple snapshot of how well you manage credit and allows lenders to quickly assess the level of risk when lending money to you.

Working to build and maintain a solid credit score is a common goal for most people today. But how do you accomplish that when the score you see online isn’t always the same as what lenders see?

Two Common Credit Scoring Models

The most popular credit scoring models used today are FICO and VantageScore. To make the situation even more confusing, there are multiple versions of each. For example, FICO offers FICO Score 8, 9, 10, and 10 T, as well as industry-specific models. Likewise, common VantageScore models include 1.0, 2.0, 3.0, and 4.0.

While there are various iterations of each model, the most used today are FICO Score 8 and VantageScore 3.0 - these models are the two we will highlight going forward.

Understanding FICO Scores

FICO scores are used in most lending decisions today. This model was created by an outside company, Fair Isaac Corporation, and it uses data from the three major credit bureaus (Experian, Equifax, and TransUnion) to calculate your score.

When learning about credit scores, this model is the most popular because the components and their weights are transparently defined. Your FICO score is calculated using the following categories:

35% = Payment History

This section carries the most weight and calculates how often you make payments on time, make late payments, or completely miss payments.

30% = Amount of Debt

Lenders want to know how responsibly you manage debt. This category uses a figure called your Credit Utilization Ratio (CUR), which shows how much of your available credit you’re currently using or utilizing. Ideally, you want to keep this figure below 30%.

15% = Length of Credit History

Time is a great indicator of how you manage money. This component measures the average age of your credit accounts - taking into consideration your oldest account and how recently you opened new credit lines.

10% = Amount of New Credit

When you apply for several new credit cards or loans in a short period, it can signal to lenders you’re in financial trouble. This section highlights recent inquiries and any new credit opened, so lenders can better gauge your risk level.

10% = Credit Mix

As you age, your credit mix will likely expand to include various loan types, such as car loans, credit cards, and home loans. A diverse credit portfolio helps lenders better understand how you manage different loan and payment types.

Understanding VantageScore

Created by the three major credit bureaus (Equifax, Experian, and TransUnion), the VantageScore model is the version you see most often when viewing your credit score online through online banking or similar platforms.

Unlike FICO scores, which provide a detailed breakdown of each score component, VantageScore is a bit broader. You’ll usually see components listed by how influential they are in calculating your score, such as:

Payment History = Extremely Influential

Like the FICO model, this section considers on-time, late, and missed payments.

Age & Type of Credit = Highly Influential

This section examines the ages of your credit accounts and the overall mix of credit types and loans.

Percentage of Credit Used = Highly Influential

Again, this section uses the same Credit Utilization Ratio (CUR) as the FICO score.

Total Balances = Moderately Influential

While FICO scores focus on total debt, they typically place greater emphasis on your CUR. VantageScore also factors in the total balances of all credit cards and loans as a category.

Recent Credit Behavior = Less Influential

VantageScore also monitors how recently you applied for new credit, how often, and whether you opened any new credit lines or loans.

Available Credit = Less Influential

While this figure is also part of calculating your CUR, VantageScore gives your total available or unused credit an extra category.

Comparing the Two Credit Scoring Models

One thing that you’ll notice is that the FICO and VantageScore models are pretty similar in what they monitor. Both methods aim for the same result - helping lenders assess how risky it may be to lend you money. They also provide you with the opportunity to identify areas to improve your score.

However, there are a few differences between the models, which help account for variations in your credit score.

• FICO scores usually require a minimum of 6 months of credit history to generate a score, while VantageScore uses as little as 1 month.

• VantageScore places slightly more weight on Payment History than FICO, but Credit Utilization is weighted a bit lower.

• VantageScore is a little more lenient on inquiries for new credit - grouping several inquiries within a short timeframe and listing it as a single inquiry - assuming you were “rate shopping.”

• VantageScore also tends to be a little more forgiving when it comes to paid off collections – removing them from your credit file sooner than FICO.

While VantageScore is the most commonly used model on credit monitoring websites and online platforms, FICO is used by lenders in most credit approvals. These scores can be the same, but VantageScore results tend to fluctuate more often because they place greater emphasis on short-term credit changes.

Your goal when monitoring your credit score is to identify outlying issues, such as late or missed payments, maxed-out credit cards, errors, and potential fraud.

How to Boost Your Credit Score Quickly

Regardless of whether you monitor your credit score with FICO or VantageScore, there are simple strategies to boost your score quickly.

• Pay Down Credit Card Debt

Your Credit Utilization Ratio (CUR) plays a significant role in both credit scoring models. Reducing outstanding credit card debt is one of the best tactics to improve your score. Ideally, your CUR will be below 30%. Those with exceptional credit scores tend to have a CUR below 6%.

• Never Miss a Payment

Set a reminder on your phone for every loan and credit card payment - helping ensure you never miss a payment. If you’re experiencing a financial setback and are unsure if you’ll be able to make a payment on time, reach out to your lender before the due date. They often have solutions that won’t impact your credit score.

• Avoid Applying for New Credit

Credit card companies have turned a costly loan into a game, with nonstop commercials about earning rewards. Ignore these messages and only apply for credit when truly necessary.

Credit scores are already a tricky subject and it doesn’t help that different models can produce different scores. However, as long as you focus on building strong financial habits, such as making payments on time, using credit responsibly, and avoiding unnecessary loans or credit accounts, your score will rise - improving your chances of being approved for a loan, and reducing how much that loan costs.

If you have questions about how the credit union uses credit scores when approving loans or want guidance on improving your score, we’re ready to help. Please stop by any of our convenient branch locations or call 248-322-9800 extension 5 to speak with a team member today.

 

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