You probably already know that your credit score can have a big impact on your financial life. It affects the types of loans and credit cards you’re eligible for, as well as the interest rate you receive. Many employers also check your credit score when you apply for a job to because it gives them information about how you handle your responsibilities and allows them to verify your background, education and employment history.
There are several different credit reporting models, but FICO® and VantageScore are the most widely used today. Both of these credit models use your past behavior to predict how you’ll handle your debts and other financial responsibilities in the future.
What Are FICO and VantageScore?
FICO, previously known as Fair Isaac Corporation, has traditionally been the main credit score provider for most financial institutions. Mortgage lenders typically use your FICO score to determine if you qualify for a home loan. FICO takes data from the three major credit rating bureaus — TransUnion, Experian and Equifax — and develops a score based on your credit history and borrowing activity.
In 2006, these three credit reporting bureaus joined forces to create a new scoring model, called VantageScore. It uses alternative data like your payment history on rent, utilities and other bills to estimate your credit score. It also considers how you pay off your debts each month and how many high-limit credit cards you have. Mortgage lenders don’t typically use VantageScore for mortgage loans, but sometimes it’s used by other lenders, and some landlords also use it when evaluating prospective tenants.
Now you know that FICO and VantageScore are two different credit scoring models, but what exactly sets them apart? Let’s compare the two to see how they match up.
Similarities Between FICO and VantageScore
FICO and VantageScore share a number of similarities. Both models report credit scores using the same scoring range — 300 is the lowest score, and 850 is the highest. Both models also base their scores on the following information:
Whether you make payments on time for credit card and loans
The length of time you’ve been borrowing
The types of credit you use, such as installment or revolving credit
How often you use credit
The number of credit inquiries, or credit checks, on your account
Key Differences Between FICO and VantageScore
FICO and VantageScore also have significant differences, starting with the way they calculate your score.
FICO requires at least six months of credit history to calculate your score. That’s because they’re looking deeper into your credit history to see how you’ve used credit over time.
VantageScore needs only one month of history and one credit account that’s been reported over the past two years. So, even if you don’t have a long credit history, you’ll still have a VantageScore credit score.
There are also differences in the ways you can check your own rating for each type of credit score.VantageScore allows you to check your score for free on websites like Credit Karma, Credit Sesame and WalletHub.
FICO usually requires a fee to check your score. However, you can get one free credit report from each of the three credit bureaus every year by visiting AnnualCreditReport.com.
The Consequences of Late Payments
Missing payments and making them late can greatly impact your score on both models. Here are some of the factors that both models consider:
How much time has passed since your last late payment
Your total number of loans that are 30 days or more past due
The total number of payments you have missed
FICO evaluates all late payments equally. VantageScore, however, puts special emphasis on your mortgage payment history in their calculations.
How Credit Inquiries Impact Your Credit Score
There are two types of credit inquiries: hard and soft.
A hard inquiry, or “hard pull,” is made any time you apply for new credit, like opening a new credit card.
A soft inquiry, or “soft pull,” is a recurring inquiry on an existing product, like an insurance policy renewal. Soft pulls are often used by organizations to look for changes in your score and evaluate whether they should continue or change their relationship with you. Some lenders also use soft pulls to estimate the interest rate you might receive before you officially apply for a loan.
Credit bureaus only consider hard inquiries—and too many of them can negatively affect your score. Luckily, multiple hard pulls made within a specified amount of time are categorized as a single pull. So, try to cluster your VantageScore inquiries within a 14-day timeframe, and your FICO inquiries within a 45-day timeframe. That means if you’re shopping around for a new car or home loan and want to minimize the impact on your credit score, try not to take too long to make your final decision!
How Collections and Negative Data Impact Your Score
Negative information can haunt your credit report for up to seven years. In their calculations, VantageScore ignores paid collection accounts and discounts medical collection accounts. FICO ignores all collections where the original balance is below $100, as well as paid collection accounts.
How to Improve Your Credit Score
Follow these practices to get your best possible score in either model:
Always pay your bills on time. If you’re not able to pay on time, pay within 30 days of the due date.
Dispute, correct or settle any items that have gone to collections.
Focus on paying installment loan payments over revolving ones, but always pay at least the minimum amount due.
Try not to carry a balance of more than 30% of your credit line or credit card for an extended period. For example, if your credit limit is $1,000, keep your unpaid balance under $300.
Do not go over your credit limit. Ask for a credit limit increase if you need it.
Plan ahead for your credit application needs, and try not to close your oldest accounts because that could impact the length of your credit history.
Manage your hard credit inquiries to keep them at a minimum. Group or cluster them when possible.
With this information, you can protect your credit score and use your it your advantage. Be sure to ask your lender or vendor which credit model they are using in your situation — it could make a big difference.