When it comes to credit scores, there are two major players in the game: FICO and VantageScore. Both companies provide credit scoring models that lenders use to determine creditworthiness. But what are the differences between these two models, and which one is better? In this article, we'll compare FICO and VantageScore and help you understand which one is right for you.
What is FICO?
FICO is the most widely used credit scoring model in the United States. It was created by the Fair Isaac Corporation in 1989 and is used by 90% of the top lenders in the country. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness.
FICO scores are calculated based on the data in your credit report, including your payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. Each factor is weighted differently, with payment history being the most important.
What is VantageScore?
VantageScore is a newer credit scoring model that was created in 2006 by the three major credit bureaus: Equifax, Experian, and TransUnion. VantageScore scores also range from 300 to 850, with higher scores indicating better creditworthiness.
VantageScore scores are calculated using similar factors to FICO, including payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. However, VantageScore uses a slightly different weighting system, with payment history and credit utilization being the most important factors.
How do FICO and VantageScore compare?
While both FICO and VantageScore use similar factors to calculate credit scores, there are some key differences between the two models. Here are a few things to keep in mind:
Credit score range: Both FICO and VantageScore use a range of 300 to 850, but the way scores are calculated can result in slightly different scores for the same person.
Weighting of factors: FICO places the most emphasis on payment history, while VantageScore places more emphasis on credit utilization. This means that someone with a high credit utilization but a perfect payment history may have a lower FICO score and a higher VantageScore.
Credit history length: FICO requires a minimum of six months of credit history to calculate a score, while VantageScore only requires one month. This means that someone with a short credit history may have a higher VantageScore than FICO score.
Industry usage: While FICO is more widely used in the mortgage industry, VantageScore is gaining popularity in other industries, such as credit card and auto loans.
Which one is better?
There's no simple answer to which credit scoring model is better, as it depends on the lender and the industry. However, it's important to note that both FICO and VantageScore are reliable and accurate credit scoring models. It's also important to remember that your credit score is just one factor that lenders use to determine creditworthiness, and other factors such as income and employment history may also be considered.
Conclusion
FICO and VantageScore are both widely used credit scoring models that lenders use to determine creditworthiness. While there are some differences between the two models, both are reliable and accurate. It's important to understand your credit score and take steps to improve it, regardless of which model is used to calculate it. By making timely payments, keeping credit utilization low, and monitoring your credit report for errors, you can improve your creditworthiness and open up new opportunities for yourself in the future.
