The difference between FICO & VANTAGE scores

Mismanaging your credit is a surefire way to end up in the financial doghouse. Trying to make that leap into real estate, the car rental industry, or any business idea without a sustainable line of credit is making the game hard on yourself. The U.S credit system is designed for you to take advantage if you’re willing to spend enough time to learn. Lower credit scores lead to major purchases like cars or homes becoming pocket drainers over time because of higher interest rates.

In the past few BWR blog posts, we’ve been going over credit and why establishing healthy lines of credit is in your best interest going forward. Topics on why establishing healthy lines of credit is important, how to give your child an 800 credit score, and even how the credit bureaus determine your credit score. Today, we’ll be revisiting the latter to understand the difference between where your scores come and which scores matter the most depending on the purchase.

Do you have bad credit? Well it's never too late to change that but first let's go through what how the credit bureaus determine your score

THE FIVE FACTORS OF CREDIT pic.twitter.com/5VNfFzyOX7

— Black Wealth Renaissance (@BWR_Movement) December 29, 2019

FICO

The Fair Isaac Corporation, FICO, was originally a data analytics company focused on credit scoring and managing consumer risk. Consumer risk is simply the likelihood of a consumer to default on a loan. This data helps lenders evaluate creditworthiness for borrowers when it comes time for a major purchase. The first FICO scores were used to gauge which homeowners qualified for mortgages.

FICO and VantageScore are two companies that develop credit monitoring software which is able to generate a credit score for the credit bureaus. FICO is a well-known name when you ask someone about credit and around 90% of major lenders use FICO scores to determine customer risk. But according to a study by Oliver Wyman, 2,500 businesses reviewed around 12.6 billion scores with the VantageScore scoring method; In 2018 to 2019 the year-by-year usage rating of VantageScore by lenders rose by 20%.

Fico and VantageScore scores are calculated differently in inquiries, utilization, and open credit trade lines. If more lenders take on the VantageScore method it’ll affect how much you can qualify for in student loans, bank loans, auto loans.

Score Makeup

10% Credit Inquiries/New Credit
10% Types of Credit/Credit Mix
15% Age/Length of Credit History
30% Level of Debt/Amounts Owed
35% Payment History

Pros

• FICO scores are still used by 90% of major lenders which means this score will impact your ability to qualify for certain loans

• New FICO scoring models count multiple inquiries of the same type as a single inquiry in a 45-day period.

Cons

• Consumers must have 1 or more accounts open longer for at least 6 months and 1 account that has reported to the bureau in the last 6 month to receive their FICO score

• Paying your collection debts, past debt owed, doesn’t erase the debt from your credit report even after paying them off

Credit fundamentals 101 teaches everything you need to know to build and maintain outstanding credit

CREDIT CHECKLIST: FICO & VANTAGE SCORE CHECKLIST

VANTAGESCORE

The VantageScore credit scoring model is a joint data resource realized through Experian, TransUnion, and Equifax linking up to form VantageScore Solutions, LLC, in 2006. While the FICO scoring model is custom made for each of the three credit bureaus, the VantageScore model allows scoring to occur with a single model from the bureaus. Your VantageScore is a direct link to your credit history over time as opposed to the FICO score being represented in different scoring models.

Score Makeup

3% Available Credit

5% Recent Credit History

11% Total Balances/Debt

20% Percent of Credit Used

21% Age and Type of Credit

40% Payment History

Pros

• Friendlier to people with fresh credit who may not have 6 months’ worth of credit history.
• Factors monthly recurring payments to people who may not be able to obtain a FICO score
• Paying off past collections fees will not affect your debt utilization negatively.
• Your credit score won’t be hit for hard inquiries such as when you try to open up a new credit line or apply for a student loan.

Cons

• Heavier penalties for late mortgage payments as opposed to other scoring methods
• Multiple inquiries on your credit report over a 14-day period for the same type of loan can negatively impact your Vantage Score
• Your latest VantageScore can reflect credit spending during a 2-year period along with your utilization rates
• Only calculates base scores and not industry-specific scores, like for an auto loan or a mortgage.

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Why Credit Karma Isn’t The Most Reliable Credit Resource

Credit Karma is a reliable free resource for those people that want an “estimate” of what they think their credit score is. This system lets users view their reported credit score from the bureaus for free whenever they please. Sounds too good to be true right?

Credit Karma in actuality only relies on reports from Equifax and TransUnion, leaving out crucial credit information that may affect how you view your score. The score Credit Karma gives you and the score that lenders see when you propose a loan are two totally different scoring methods. Your overall score from Credit Karma won’t change instantly without filing a credit report to the bureaus.

Once you understand how your score is truly calculated, the need to rely on Credit Karma for credit score information will no doubt experience a decline.

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