In the sphere of creditworthiness, two credit scores reign supreme, the VantageScore and the FICO score, but while each offers similar indications on fiscal health, they are considerably different. VantageScore is a newer model, only coming onto the scene in 2003, but that does not inhibit the valuable insights that it can offer consumers and credit lenders. FICO scores have been the industry standard for years, helping lenders determine their risks in different loan ventures. While both present consumers and lenders with familiar credit ranges, they differ in scoring models, requirements, standards and penalty determinations, so to be a wise consumer, it pays to understand the intricacies of each.
Scoring Models
A credit score is not determined out of thin air, the number requires historical data to determine value, but Vantage and FICO collect that data differently, which can lead to confusion for consumers. It is possible for your Vantage and FICO scores to be different, despite rating the same data. The variance comes into play with how each company addresses the importance of various credit issues and how they collect their data. For example, while each report will focus on five critical areas – payment history, credit usage, types of credit, length of credit and recent inquiries – FICO bases their scoring off of the averages millions of anonymous consumers. In contrast, VantageScore uses a single formula derived from a combined set of consumer credit files.
Credit History Requirements
Time also affects the value of your credit score and the ability to even establish a credit rating in some circumstances. For consumers with a limited credit history, the FICO score will be of little importance if they do not have a minimum of a six-month history. With FICO’s scoring methodology, it is not possible to get an accurate measure of creditworthiness without establishing some form of credit, which is why many parents will permit their children as authorized users on their credit cards, giving them a boost and providing a credible credit history. VantageScore, however, requires less time to formulate a number for creditworthiness, typically only requiring one month, which makes it more useful to those just starting out on their credit journey.
Utilization
Credit utilization refers to the amount of debt you carry compared to credit allowance, and both scoring models define high utilization differently. VantageScore is often considered less strict in how they approach high use. For example, the company suggests restricting credit usage to 30% or less. However, FICO is known for being more critical of even low use, making it necessary to focus heavily on spending balances and repayment. Remember, the point of a credit card is to establish credit, not spend it.
Late Payments
Late payments do not bode well for your credit score, regardless of the company doing the projecting, but credit type may have a more drastic effect on a VantageScore than a FICO report. FICO essentially treats all late payments the same regardless of the credit type, VantageScore places a higher level of importance on things like mortgages. Therefore, while you may see an equal impact on each score from late credit card payments, your FICO score may be higher than your VantageScore if you miss a mortgage payment.
Collections
The impact of collections, especially low balance collections, is another area where these two scores may differ. While FICO ignores low balance collections where the original balance was under $100, VantageScore considers all collections, regardless of the original balance. However, both scoring models will ignore paid collections when factoring your score.
Inquiries
Hard inquiries are another ding to your credit report; however, depending on the type of credit being sought, it may not have the same effect on both the Vantage and FICO score. For example, while applying for credit cards will likely result in a hard inquiry, FICO does not typically penalize this type of inquiry, favoring auto, mortgage and student loans instead. VantageScore, alternatively, considers all inquiries.Which credit score, then, is more beneficial to the consumer? The answer depends on the situation and the credit history of the consumer. For those with limited history, the VantageScore report will offer more insight than FICO. However, both reports should be monitored, especially if you are trying to establish or rebuild your credit. If you are interested in discussing your options for credit repair or building, then contact Coast Tradelines.
