In the world of credit scores, two names stand out: FICO and VantageScore. As a UK-based financial expert with over a decade of experience in accounting and credit repair, I often encounter confusion among women and mothers about these two scoring models. Let’s demystify these crucial financial tools and understand how they impact your financial life.
What Are FICO and VantageScore?
FICO, short for Fair Isaac Corporation, has been the industry standard for credit scoring since 1989. VantageScore, on the other hand, is a newer player, created in 2006 as a joint venture by the three major credit bureaus: Experian, Equifax, and TransUnion.
Scoring Range and Categories
Both FICO and VantageScore use a range of 300-850, making it easier for consumers to compare scores. However, they categorize these ranges slightly differently:
| Category | FICO | VantageScore |
|---|---|---|
| Excellent | 800-850 | 781-850 |
| Very Good | 740-799 | 661-780 |
| Good | 670-739 | 601-660 |
| Fair | 580-669 | 500-600 |
| Poor | Below 580 | Below 500 |
Factors Influencing the Scores
While both models consider similar factors, they weigh them differently:
FICO
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- Credit Mix: 10%
- New Credit: 10%
VantageScore
- Payment History: 40%
- Credit Utilization: 20%
- Credit Mix and Experience: 21%
- Balances: 11%
- Recent Credit Behavior: 5%
- Available Credit: 3%
Key Differences
1. Credit History Requirements
FICO requires at least six months of credit history and at least one account reported in the past six months. VantageScore can generate a score with just one month of history and one account reported in the past two years.
2. Treatment of Multiple Credit Inquiries
FICO treats multiple inquiries for the same type of loan within 45 days as a single inquiry. VantageScore does this for a 14-day period, regardless of the loan type.
3. Consistency Across Credit Bureaus
VantageScore uses a single algorithm across all three credit bureaus, potentially leading to more consistent scores. FICO scores can vary slightly between bureaus due to differences in their specific algorithms.
4. Scoreable Population
VantageScore claims to score approximately 40 million more people than traditional models, including those with thin credit files.
Impact on Mortgage Lending
Traditionally, FICO scores have been the go-to for mortgage lenders. However, recent developments suggest a potential shift. The Federal Housing Finance Agency (FHFA) is considering allowing lenders to use other scores, including VantageScore, in lending decisions.
Which Score Do Lenders Use?
While FICO remains dominant in mortgage lending, VantageScore is gaining traction in other areas:
- Credit Cards: Both scores are widely used
- Auto Loans: FICO is more common, but VantageScore is increasing in usage
- Personal Loans: VantageScore is popular due to its ability to score more consumers
What This Means for You
As women managing household finances, understanding these differences is crucial:
- Check Both Scores: Monitor both your FICO and VantageScore, as lenders may use either.
- Understand the Factors: Focus on improving factors that both models heavily weigh, like payment history and credit utilization.
- Be Aware of Inquiries: When rate shopping, try to do so within a short timeframe to minimize the impact on your scores.
- Build Credit Strategically: If you have a thin credit file, VantageScore might give you a score sooner than FICO.
Conclusion
While FICO and VantageScore have their differences, the principles of good credit remain the same: pay your bills on time, keep your credit utilization low, and manage your credit responsibly. By understanding these scoring models, you’re better equipped to navigate your financial journey and make informed decisions for your family’s future. Remember, a good credit score, regardless of the model, opens doors to better financial opportunities. Keep monitoring your scores, and don’t hesitate to seek professional advice if you need help improving your credit health.
Frequently Asked Questions
Q1: Can I have different FICO and VantageScore credit scores?
Yes, it’s common to have different scores due to the varying algorithms and data sources used by each model.
Q2: Which score should I focus on improving?
Focus on improving factors that benefit both scores, such as payment history and credit utilization.
Q3: How often do these scores update?
Both scores typically update monthly, as creditors report new information to the credit bureaus.
Q4: Can checking my own credit score lower it?
No, checking your own score is considered a “soft inquiry” and doesn’t affect your score.
Q5: How can I access my FICO and VantageScore credit scores?
Many credit card companies and financial websites offer free access to one or both of these scores. You can also purchase them directly from FICO or the credit bureaus.
