FICO vs. VantageScore: Which One Really Matters?

Whether you’re getting ready to purchase your first home, or take out a loan to fund a business, you’ve likely been paying closer attention to your credit score than usual, which means you’ve likely come across both your FICO and VantageScore. And, when those numbers differ, it can feel like a guessing game when it comes to knowing your actual credit score. 

So how can you know which score to trust before visiting the bank? Read on to understand how the two scores differ, and how to get an accurate representation of your credit score. 

The Three Credit Bureaus

The three major credit bureaus are Equifax, Experian, and TransUnion, each of whom compile their own separate credit reports. Each bureau uses their own criteria to generate your credit score, but do not share this information with one another, which is why your score may differ between each bureau. TransUnion, for example, factors in personal information and employment history to impact their overall score. And, depending on the lender you’re borrowing from, they may only pull reports from a specific bureau. 

That being said, all three credit bureaus use FICO and VantageScores to generate your credit report, so it’s important to understand what those scores mean, and how they’re measured.

FICO Score

A FICO score is a credit score created by the Fair Isaac Corporation (FICO). And while FICO and credit scores can be the same, that’s not always the case. The FICO credit score is one of the most popular ways to measure your credit, and lenders use borrowers’ FICO scores to help assess credit risk and determine whether to extend credit. 

FICO scores range from 300 (lowest) to 850 (highest). Generally, scores in the 670 – 739 range are considered “good,” while borrowers with a score of anything lower than 669 will likely have trouble finding attractive rates. To generate your score, FICO calculates it using a combination of five components:

1. Payment History – Along with measuring your on-time payments, this also includes delinquent accounts and anything sent to collections. 
2. Debt Utilization Ratio – This measures how much you owe to your creditors divided by the total amount available for you to borrow. Keep in mind this includes credit cards, auto loans, mortgages, and personal loans.
3. Length of Credit History – The longer you’ve had established credit, the higher your score. This signifies your experience with debt management, meaning the older your accounts, the less risk you are to potential lenders.
4. Types of Credit – Having a range of credit, from credit cards to mortgages, shows lenders you know how to manage various types of debt responsibly, meaning a healthy mix makes you appear as less of a risk. 
5. New Credit Inquiries – Whether you’re applying for a loan or a new credit card, it’s recorded on your credit report as a soft or hard pull. While one or two inquiries per year won’t really impact your score, anything more can significantly drop your ranking.

VantageScore

VantageScore was created by the three major credit bureaus — Experian, Equifax, and TransUnion. It uses a similar scoring model to FICO, but provides slightly different results.

One of the major goals of VantageScore is to provide an accurate model for all three credit bureaus to follow to generate a credit score. VantageScore uses the same five components as FICO, but orders their importance a little differently: 

1. Debt Utilization Ratio
2. Types of Credit
3. Payment History
4. Length of Credit History
5. New Credit Inquiries 

Because of this, a borrower with impeccable payment history, but a weak mix of credit types, may rank higher on FICO but have a lower VantageScore.

So Which One is Accurate?

In short, both. While FICO and VantageScore vary their top factors for scores, they still measure the same components, and report those numbers back to the three credit bureaus. Regardless, it’s important to make timely payments, keep a healthy credit mix, and monitor your debt utilization ratio to keep your score in check.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.