When it comes to assessing your creditworthiness, two major credit scoring models often come up in conversation: FICO and VantageScore. These models are the key metrics lenders use to determine your ability to repay loans, credit cards, mortgages, and more. However, many consumers remain confused about the differences between them and which one plays a larger role in lending decisions. In this article, we’ll break down what each scoring model is, how they differ, and what lenders really use when evaluating your credit.
What is FICO?
FICO, which stands for the Fair Isaac Corporation, has been the standard in credit scoring since its introduction in 1989. The FICO score is one of the most commonly used credit scores by lenders and is considered the gold standard when evaluating a borrower’s creditworthiness. The score ranges from 300 to 850, with higher numbers indicating better credit health.
FICO scores are used by nearly all major lenders, including banks, mortgage companies, and credit card issuers. The score is based on five key factors:
- Payment History (35%): Your record of on-time payments, including any delinquencies or defaults.
- Credit Utilization (30%): The ratio of your current credit card balances to your available credit.
- Length of Credit History (15%): How long your credit accounts have been active.
- Types of Credit (10%): The variety of credit accounts you have (e.g., credit cards, auto loans, mortgages).
- New Credit (10%): Recent inquiries and newly opened credit accounts.
What is VantageScore?
VantageScore is another credit scoring model created in 2006 by the three major credit bureaus (Equifax, Experian, and TransUnion). While it’s relatively newer than FICO, VantageScore has grown in prominence over the years and is used by many lenders, particularly in industries like auto loans and personal credit.
VantageScore also uses a scale ranging from 300 to 850, but its scoring model differs slightly from FICO’s. Here’s a quick look at how VantageScore calculates your credit score:
- Payment History (40%): Like FICO, VantageScore places the most weight on your payment history, including late payments, defaults, and bankruptcies.
- Credit Utilization (20%): The percentage of your credit limit you’re using.
- Credit Balance (11%): Your total outstanding debt, including balances on all credit accounts.
- Depth of Credit (10%): The variety and number of credit accounts you have.
- Recent Credit Behavior (5%): How often you open new credit accounts or take on new debt.
- Available Credit (24%): The total amount of credit available to you, factoring in open and unused credit accounts.
While the two models share some similarities, it’s clear that VantageScore gives more weight to factors like credit balance and available credit.
Key Differences Between FICO and VantageScore
Understanding the differences between FICO and VantageScore can help you manage your credit more effectively. Here are the main distinctions:
1. Scoring Ranges
- FICO: 300 – 850
- VantageScore: 300 – 850 (but with different benchmarks and sometimes different thresholds for what constitutes “excellent” or “poor” credit).
2. Credit Utilization
- FICO: Strongly weighs credit utilization (30% of the score).
- VantageScore: Also considers credit utilization but places greater importance on factors like available credit.
3. Recent Credit Behavior
- FICO: Focuses more on the credit history, not on recent behavior.
- VantageScore: Pays more attention to recent credit activity, such as new accounts opened or credit inquiries.
4. Scoring Models Over Time
- FICO: Over the years, FICO has adjusted its model, but the key factors have remained relatively constant.
- VantageScore: VantageScore has undergone more revisions to refine how it calculates scores and has become more inclusive of consumers with limited credit histories.
What Do Lenders Really Use?
The short answer is that it depends on the lender, but FICO is generally the most widely used credit score. According to a 2020 survey by the Consumer Financial Protection Bureau (CFPB), approximately 90% of major lenders use FICO scores to determine loan eligibility. In particular, mortgage lenders tend to rely heavily on FICO scores, and this trend is unlikely to change soon.
However, VantageScore is gaining traction. Some lenders, particularly in the auto loan and personal lending sectors, use VantageScore. In fact, some smaller lenders and credit card issuers prefer VantageScore because it is updated more frequently and offers a slightly different perspective on a consumer’s creditworthiness.
Which One Should You Pay Attention To?
For most consumers, focusing on FICO scores will be your best bet. This is the score that matters most for securing mortgages, auto loans, and credit cards from major financial institutions. However, if you’re looking to get a better understanding of your credit from multiple angles, it doesn’t hurt to check your VantageScore as well.
Improving Your Credit Score: FICO vs. VantageScore
Whether you’re working on improving your FICO or VantageScore, the fundamentals remain the same. Here are some key tips to boost your credit:
- Pay your bills on time: Both models put significant weight on payment history, so ensure you don’t miss payments.
- Keep credit utilization low: Aim to use less than 30% of your available credit.
- Avoid too many credit inquiries: Opening several new accounts can hurt both your FICO and VantageScore.
- Review your credit reports: Make sure there are no errors affecting your score.
- Diversify your credit mix: Having a mix of credit types, like revolving credit (credit cards) and installment loans (mortgages, car loans), can benefit both scores.
Final Thoughts
While FICO scores dominate the lending landscape, VantageScore is increasingly being adopted, especially in certain markets. The key takeaway is that it’s important to regularly check both scores to have a holistic understanding of your credit health. By maintaining good habits—such as paying bills on time, managing debt responsibly, and checking your credit report—you can improve both your FICO and VantageScore, making it easier to secure the best possible loan terms when you need them.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial advice. Always consult with a qualified financial professional before making decisions based on your credit score or creditworthiness.