FICO vs. VantageScore: What’s the difference and why does it matter?
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When we talk about credit cards — especially premium travel credit cards — your credit score is one of the most important factors in determining whether or not you’ll be approved. But your score plays a role in much more than just your likelihood of getting The Platinum Card® from American Express. It also plays into personal loan applications, mortgage applications, car loan applications and more — some landlords may even want to check your credit score before allowing you to rent from them.
There are a lot of ways you can check your credit score for free, but did you know that the credit score shown by sites like Credit Karma isn’t necessarily the score that gets seen by lenders and credit card companies? That’s because there are different kinds of credit scores out there, and where you get your score from might change the number you see.
Today, we’re diving into the two broad types of credit scores you’ll see — FICO and VantageScore — the differences between them and why it matters.
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Why do you get different scores depending on the source?
Fun fact: You don’t have just one credit score.
Credit scoring agencies actually have several different scores tailored toward specific types of credit and pull specific credit data. For example, a car loan lender may pull a FICO score tailored to the auto industry, while a credit card lender may pull a FICO score that is more specific to credit cards.
On top of multiple credit card scores from the same credit scoring model, there are also two common scoring models that will lead to different scores: FICO and VantageScore.
What’s the difference between FICO and VantageScore?
FICO and VantageScore are two generic credit score models that are used across the credit reporting industry. While both scoring models have the same scoring range and goal — to determine a borrower’s creditworthiness to help lenders decide whether or not to extend credit to an individual — they do have different scoring methods.
FICO generates three different credit scores — one for each credit bureau. While a lender may pull all three scores when assessing your creditworthiness, each number may differ depending on which agencies your past lenders reported to.
On the other hand, VantageScore is a tri-bureau model created through a partnership of all three major credit reporting agencies (Experian, Equifax and TransUnion). Your VantageScore is just one number, and it incorporates machine learning to generate a score for people who may not have enough credit history for a FICO score.
Additionally, each scoring method places differing importance on different scores. FICO, for example, puts more weight on your current credit balances than VantageScore. In contrast, VantageScore pays closer attention to your length of credit history and types of credit used compared to FICO.
How to make sure you get the “right” score
So with so many credit scores floating around, how can you make sure you’re looking at the “right” one?
Well, the first thing is to recognize that when you get a free credit score from issuers or third-party services like Credit Karma, you’re likely getting what’s called an educational credit score.
This credit score is pulled using a “soft inquiry,” which doesn’t give a full, up-to-date picture of your current credit score. Your educational score (which is generally based on a VantageScore model) is just for you to have a general idea of your creditworthiness so you know where you can improve — it’s not the score most lenders use when assessing accessing whether to approve you for a line of credit.
FICO is by and large the most commonly used type of score pulled by lenders. So when you are checking your credit score, that’s the type of score that will give you the number most similar to the score lenders are likely seeing. This is especially true for mortgage lenders, who have been slow to adopt any other scoring methods outside of FICO.
While VantageScore models are becoming increasingly popular (VantageScore reported an almost 20% usage increase in its 2019 Market Adoption Study), they are mostly used for educational purposes, prequalification screenings for credit cards (such as those prequalified targeted offers you probably get often in the mail) and non-financial score checks (such as an apartment application).
For credit cards, specifically, issuers may pull your VantageScore alongside your FICO score when looking at your application. However, your FICO score is still going to be the most commonly looked-at score overall.
Credit scores are such an important part of your financial health, but knowing which scores are used by which lenders can be extremely confusing. And with so many different types of scores out there, it’s certainly frustrating to narrow down which sources will help give you the most accurate picture of your credit score.
Hopefully, this guide has helped clear up some of the confusion and provided a starting point for assessing your credit score.
Featured image by 10’000 Hours/Getty Images
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