You may be familiar with the idea of a single credit rating, but in reality two The main providers of credit ratings that assess your creditworthiness are FICO and VantageScore. Although FICO is used for 90% Of all the lending decisions, VantageScore can play a role in whether or not you get credit approval. Here’s what you need to know.
What are FICO and VantageScore credit scores?
FICO and VantageScore are similar in that for the most part your score is scored on a scale of 300 to 850 (versions prior to VantageScore 3.0 range from 501 to 990) based on data collected by three credit bureaus: Experian, TransUnion as well as Equifax…
Although FICO compiles credit ratings based on data from major credit bureaus, it does not collect credit report data on its own. To compete with FICO, the three bureaus created VantageScore in 2006. Both FICO and VantageScore base their scores on your credit history, but they differently weighted:
What is your FICO 8 score?
- 35% payment history
- 30% debt / debt amount
- 15% age / length of credit history
- 10% types of loans / mix of loans
- 10% loan requests / new loan
What is your VantageScore?
- 40% payment history
- 21% age and type of loan
- Used 20% of the loan
- 11% of the total balance / debt
- 5% recent credit behavior and inquiries
- 3% available loan
Oddly enough, each credit rating has different versions with slightly different weights, sort of like software updates. However, with FICO there is estimates developed for specific situationshow to apply for a mortgage or a car, although it is not always clear which one the lender will use.
What is the difference between the grades?
FICO is used much more often – if you are applying for a loan, credit card, or any other type of financing, lender probably using your FICO 8 rating when reviewing your application. There are other weighting differences as well, as FICO treats all late payments the same, whereas VantageScore has tighter penalties for late mortgage payments. FICO also pays more attention to your current credit balances than VantageScore, which pays more attention to the length of your credit history and the types of loans you provide. The FICO also compiles a separate score for each of the three bureaus, as opposed to VantageScore. which only reports one number.
By pointsVantageScore is getting more and more popular, but it is mainly used for educational purposes (like the “free credit rating” you get on apps like Credit Karma), pre-credit card qualification checks, and non-financial checks (for example, an application for an apartment). However, the lender can use it for other permits as well, as lenders often use different information to assess your creditworthiness, so you don’t want to ignore it either.
Do I really need to keep track of all my credit scores?
No, because tracking scores of scores is impractical. It is best to keep a close eye on the FICO rating provided by your bank (monthly or even weekly), and also check your VantageScore from time to time (e.g. once a quarter) in case it drops unexpectedly due to a missed payment or fraudulent purchases.
You will also want to check your credit reports every few months if you can, especially since you can request them for free until April 2022. here…