Over the last decade, a popular alternative for determining consumers’ creditworthiness has gained favor with lenders and credit providers. Known as the VantageScore, it’s the result of the three major credit reporting bureaus having decided to create their own proprietary model to provide organizations with another option to the FICO score.
Although a growing number of credit users are seeing the VantageScore show up, not everyone knows how it differs from the FICO score. To help straighten things out, the Coast Tradelines finance team compiled the following FAQs to help guide you through the differences between the two scoring models.
What’s the Basic Difference Between the VantageScore Rating and the FICO Score?
The Vantage credit score model was created as a joint venture between Equifax, Experian and TransUnion. The new reporting model makes it possible for all three of these major credit bureaus to calculate the same score. This enables lending institutions, such as credit card companies, to review a common score determined by all three reporting groups when assessing a borrower’s creditworthiness.
If you’ve made a request in the past to see your credit score by contacting Equifax, Experian and TransUnion, you may have noticed that each reporting agency has noted a different number than your FICO score. Because of the score variations between the bureaus, it could be difficult to effectively shop around for mortgage and auto lenders offering loans at attractive interest rates. However, with the uniformity provided by the VantageScore system, you — and the financial institution reviewing your creditworthiness — would see the same score presented by all three reporting agencies.
How Is Each Score Calculated?
Improvements made since its inception have resulted in the VantageScore mirroring the FICO score. Both scores provide a borrower’s credit rating with a three-digit number ranging from 300 to 850, but there is a difference in how the calculations are made.
The VantageScore model incorporates a borrower’s history of making on-time payments in combination with the consumer’s account balances and available credit. However, the FICO score bases its rating on the additional factors of a borrower’s credit utilization, the mixture of the types of accounts used and the newness of recently issued credit.
Why Do Mortgage Lenders Prefer To Use a FICO Score?
Banks that issue government-backed mortgages primarily use the FICO scoring model to determine a potential homeowner’s creditworthiness. Under certain mortgage programs guaranteed by the federal government, reviewing a borrower’s FICO score is a mandated requirement.
FICO provides lenders with a score between 300 and 850 that demonstrates where a borrower falls within a range of “Very Poor” to “Exceptional” credit. When an individual’s score is low, there exists a much greater chance that a borrower’s mortgage may go into default, which could result in a foreclosure. Mortgage lenders prefer to avoid foreclosures, so they generally require those higher FICO scores that have statistically shown borrowers have a lesser chance of defaulting on mortgage payments.
How Does a VantageScore Help When Renting or Moving Into a New Home?
While the VantageScore is typically not used for a home loan application, it can be used for turning on the utilities when renting a property or moving into a new home. A landlord could also pull a credit report and use a VantageScore rating to help determine which tenant to rent an apartment to.
How Do Credit Card Issuers Look at Each Score?
When applying for a consumer credit card, the bank or financial institution issuing credit may review either your VantageScore or your FICO score. The VantageScore rating, however, provides factors for calculating your credit score that are generally more relevant to a credit card company than the factors that FICO uses.
The primary factor for credit card issuers is typically the borrower’s history of making on-time payments. If you have an open credit card account, you may show a higher VantageScore than a FICO score because that model weighs more heavily on whether the borrower has a history of on-time payments. Because of its heavy reliance on a borrower’s payment habits, a missed or late payment may provide a VantageScore that’s lower than a FICO score.
Can a VantageScore Make My Creditworthiness Look Better Than a FICO Score?
To fall into the “Excellent” category with a VantageScore, you need a number anywhere between 781 and 850. An “Exceptional” credit rating under FICO, which is comparable to an “Excellent” VantageScore, is based on your score falling between a range of 800 and 850.
Borrowers with scores between 300 and 579 may find their applications rejected by credit card issuers for falling within the FICO model’s “Very Poor” category. Under the VantageScore model, however, falling within the “Very Poor” category reflects a score between 300 and 499.
Where Can I Learn How To Increase My Credit Score?
Coast Tradelines offers various tools to help you request each of your credit scores and also provides ways you can improve them quickly. Our responsive and experienced credit team will describe your credit-building options and help you decide which one best suits your needs and credit goals.