Your credit score seems like just a random number, but it influences everything from getting an apartment to landing your dream job. That little three-digit score trails you in life-altering ways you probably never imagined.
With credit scores factoring so prominently beyond merely borrowing money, understanding the science behind calculating that influential number becomes critical. The two most common consumer scoring models — the venerable FICO score and upstart VantageScore — share similarities on the surface but differ meaningfully under the hood.
In this comprehensive guide, we’ll unpack everything you need to know about FICO and VantageScore, from the factors driving each to tips on monitoring and improving your number. Let’s start from the top and decode the methods to the credit score madness.
The Origins of FICO Scores
Launched in 1989, FICO scores represent the OG credit rating model in the US. Short for Fair Isaac Corporation, the name comes from the company that created the methodology now used in over 90% of US lending decisions.
FICO scores range from 300-850, with higher being better. According to Experian, the average national FICO score as of 2022 sits around 716. While still the most widely adopted model, FICO‘s market share has slipped slightly in recent years with competitors like VantageScore gaining steam.
The Makings of a FICO Score
FICO scores derive from five core factors, each with different weightings:
- Payment History (35%): Whether you pay credit accounts like loans and credit cards on time.
- Amounts Owed (30%): How much you currently owe compared to original loan amounts aka credit utilization.
- Length of Credit History (15%): How long you‘ve had access to credit, starting with your oldest account.
- Credit Mix (10%): What types of credit you have experience with — credit cards, retail accounts, installment loans, mortgage, etc.
- New Credit (10%): Number of new credit applications and accounts recently opened.
Depending on the specific lending purpose, FICO produces a variety of credit score models tailored to industries like auto loans, credit cards, and mortgages. Although the score number may fluctuate between models, the basic calculation and factors generally hold consistent.
Here‘s a snapshot of how common FICO score ranges align with consumer creditworthiness tiers:
| FICO Score | Credit Rating |
|---|---|
| 800-850 | Exceptional |
| 740-799 | Very Good |
| 670-739 | Good |
| 580-669 | Fair |
| 300-579 | Very Poor |
Data Source: MyFICO
As you can see, the higher the score the better when it comes to qualifying for lending products and securing desirable interest rates.
The VantageScore Alternative
Seeking to diversify from FICO‘s longstanding dominance, the three major credit bureaus jointly introduced VantageScore in 2006. Now in its fourth generation, VantageScore grades creditworthiness on a scale from 300 to 850.
Roughly 10 billion VantageScores get issued annually, though adoption remains markedly lower than FICO. One key barrier comes from government-backed lenders Fannie Mae and Freddie Mac declining to endorse VantageScore for conforming mortgage loans.
Distilling the VantageScore Formula
Similar to FICO, VantageScore boils down to a handful of essential components:
- Payment History (40%): Repayment track record across all accounts: credit cards, retail, loans, etc.
- Age & Mix of Credit (21%): When accounts originated along with variety of credit types.
- Credit Utilization (20%): Ratio of current balances versus total available credit.
- Balances (11%): The sum total of debt carried on revolving credit lines.
- Depth of Credit (5%): Volume of accounts and frequency of activity or dormancy.
- Recent Credit (3%): Any new accounts or inquiries posted within the last 24 months.
Note the heavier emphasis on payment history (40%) compared to FICO (35%). Meanwhile, depth of credit explicitly factors in whereas FICO only indirectly measures account density through age and inquiries.
Here‘s how VantageScore credit ranges shake out relative to risk profile:
| VantageScore | Credit Rating |
|---|---|
| 781-850 | Excellent |
| 661-780 | Good |
| 601-660 | Fair |
| 300-600 | Poor/Bad |
Data Source: VantageScore Solutions
Now that we‘ve outlined the basic building blocks, where exactly do FICO and VantageScore diverge?
5 Key Differences Between Scoring Models
1. Industry Variations
FICO actively maintains dozens of industry-specific scoring models tailored to credit cards, auto, mortgages, and beyond. By comparison, VantageScore only has one core model, though it produces two trimmed-down versions for credit card and auto lending evaluations.
2. Score Factors
As outlined above, FICO and VantageScore input slightly different data signals into their credit rating algorithms, notably around depth of credit history. The weightings applied to common factors like payment history also vary notably.
3. The Credit Spectrum
VantageScore consolidates credit tiers into four major categories versus FICO‘s five groupings. VantageScore‘s scale runs in increments of 80-100 points while FICO uses tier widths of around 90-110 points. The tier thresholds sit in similar ballparks between models but show subtle distinctions.
4. Model Sensitivity
With 30% weighting toward amounts owed, FICO scores tend to react more swiftly to fluctuations in revolving credit balances. Meanwhile, VantageScore‘s 40% reliance on full payment history smooths out temporary utilization spikes. In general VantageScore champions indicate greater stability month-to-month.
5. Credit Mix View
FICO specifically measures breadth of credit mix across various sources when calculating scores. VantageScore only values credit mix indirectly through age metrics and total accounts. Installment loans and retail cards influence FICO scores more than VantageScore.
Monitoring and Improving Your Scores
Armed with perspective on the FICO vs. VantageScore debate, let‘s outline some quick tips to start tracking your scores effectively:
1. Obtain your free credit reports from AnnualCreditReport.com to audit all account details filed with the major bureaus. Reports don‘t include scores but this content drives those calculations. Review closely for errors that could artificially deflate scores.
2. Sign up for a free service like Credit Karma to monitor VantageScores monthly. Though not FICO, tracking VantageScore over time paints a directionally accurate picture of credit changes.
3. Purchase your FICO scores directly from MyFICO to benchmark versus VantageScores. Discount sites like Credit Sesamealso provide FICO estimates.
Now for some starter tips to bolster lagging credit scores:
- Pay all credit obligations on time, every time
- Lower credit utilization below 30% of available limits
- Allow length of positive history to accumulate
- Add new credit only as truly needed (avoid new debt)
- Seek only long-term installment loans initially (avoid high risk personal and payday loans)
Improving credit calls for diligence and patience. With prudent financial habits, giving time for negative marks to fade remains the ultimate recipe to lift scores.
10 Resources Beyond The Big 3 Credit Bureaus
MyFICO, Experian, and sites like Credit Karma provide a helpful jumpstart to monitoring personal credit scores and reports. However, many other excellent tools exist that warrant a spot on your radar.
Here‘s a snapshot of 10 top resources beyond the big credit bureau options:
| Site | Key Offerings |
|---|---|
| Mint | Free credit monitoring, scores, full reports, and money management tools |
| Credit Sesame | Free VantageScores, FICO estimates, and credit reports |
| WalletHub | Free reports and monitoring for TransUnion scores |
| Credit.com | Community forums plus special deals on paid credit tools |
| NerdWallet | Credit advice content and sample credit report |
| Credit Strong | Innovative savings program designed to raise credit through perks |
| Identity Guard | Full-service identity theft protection bundled with credit scores |
| The Balance | Educational explainers on credit scoring models |
| Magnify Money | Personal finance content and credit card comparison tools |
| US News Money | Articles on accessing free credit reports and scores |
This table reflects just a sample of countless valuable resources readily available online to help consumers track and understand credit. Finding sites that speak your language at the right level proves crucial to properly leveraging credit intelligence.
Closing Thoughts
I hope this comprehensive guide to FICO scores, VantageScores and the integral world of consumer credit leaves you feeling empowered. While checking a credit score may seem trivial, the difference of a few dozen points can change financial trajectories.
Now that you‘ve got the insider perspective on credit scoring methodologies, go out and shine a light in those dim numeric corners! Here‘s to many happy returns ahead thanks to deeper understanding. Please share this article if you found it helpful so we can level up more readers together.
