Lenders and credit providers have established a new way of determining consumers’ credit eligibility over the past few years. VantageScore is the solution widely used at the moment. This particular option was formed when three top credit reporting bureaus merged to start their exclusive model to offer companies an alternative to FICO score.
Even though many borrowers see VantageScore’s rise, not many of them understand how different it is from FICO score. To simplify things for you, the Coast Tradelines finance team has developed the following FAQs to guide you through the key differences between the two credit score models. Visit coasttradelines.com to learn more.
What’s the Key Difference Between VantageScore Rating and that of FICO Score?
VantageScore was started after the merger of Experian, Transunion, and Equifax. These three reporting bureaus can calculate the same score using the new reporting model. Financial institutions and various lenders can quickly review a standard score approved by the three companies. This is vital when determining if a borrower qualifies for a loan or credit.
If you had initially requested a credit score report by contacting the three credit reporting companies that make VantageScore, you will notice that each of them has a different figure compared to FICO score. VantageScore grants both lenders and borrowers a smooth time because of the reports they provide.
In the first few decades, FICO rankings made a lot of money. Whenever they want to lend to someone, they use the FICO scoring system, and Fair Isaac accepts payment. However, smart entrepreneurs finally realized that there is a lot of money here, and they began to develop their competitive system.
The competition system was developed by credit agencies Experian, Equifax, and TransUnion. They have merged, and with the advent of the Internet, they have targeted consumers and lenders with a new credit rating product, VantageScore. Like FICO, VantageScore uses numbers this time to set the credit rating from 502 to 999. In 2006, VantageScore launched a large-scale marketing campaign to introduce customers to FICO’s alternatives, which are expected to be more intuitive and cheaper. The rating system quickly gained market share.
How Do They Calculate their Scores?
The improvements made since its introduction have seen VantageScore emulating the FICO score. In both, they give you a three-digit credit rating starting from 300 to 850. The difference is seen in how the calculations are done.
VantageScore includes on-time payments history, the borrower’s account balance, and the available credit. It is different in FICO score whose ratings are based on extra factors on the borrower’s credit expenditure, a combination of the account types used, and how new the credit issued is.
Why do Mortgage Lenders prefer FICO Score?
Banks offering government-backed mortgages mostly use FICO score to determine the credit eligibility of potential homeowners. In specific mortgage programs given by the federal government, it is mandatory to review a borrower’s FICO score.
FICO offers lenders a three-digit numbered score ranging from 300 to 850. This shows a borrower’s creditworthiness range, which could be from ‘very poor’ to exceptional.’ If a borrower’s score is low, chances are their mortgage may go default, and this could result in a shutout. Most lenders prefer avoiding this, so they opt for FICO score that generally shows the chances of defaulting mortgage payments by borrowers are minimal.
How is VantageScore Helpful When Renting or Moving Into a New House?
VantageScore can be used for turning on the utilities in property renting or when relocating to a new house. Landlords can use VantageScore ratings to determine the tenants they can rent their apartments to.
How Do Lenders Look at Each Score?
Most lenders will look at either VantageScore or FICO score when applying for consumer credit. VantageScore rating provides elements for calculating your score, making more sense to a credit card company than those used by FICO. Primary factors considered include borrowing history and on-time payments made. Scores may vary between VantageScore and FICO.
Can VantageScore Improve my Score than FICO score?
The ratings for different score types in VantageScore and FICO score differ. A ‘very poor’ rating in FICO (300 to 579) differs from that of VantageScore (300 to 499). Your rating will look better with VantageScore.
Where Can I Learn How To Boost My Credit Score?
Coast Tradelines has different tools to help you request your credit scores and also give ways to enhance them faster. Our highly experienced credit team will help you understand all the available options and let you know the best to match your credit targets.
The Rise of VantageScore
Of course, FICO is not happy. They filed anti-fraud and false advertising lawsuits against high-profile competitors, claiming that VantageScore uses similar ratings. The case was eventually overturned by a judge of the U.S. District Court in 2010. The judge ruled that he could not claim FICO rating points, so the lender now chooses two institutions to score points.
It turns out that there are significant differences between VantageScore and FICO. Although many lenders use FICO, VantageScore is slowly replacing it.
What the Future Holds
As of early 2011, most creditors still use the FICO credit scoring model. Change comes slowly in the world of credit and banking, and a sudden shift to the VantageScore-only model should not be expected. The fact that both credit scoring methods are still in place. Lenders can use any of the models to come up with their final decision. However, it would be best to ask for your VantageScore copy and understand everything involved in the new scoring method since it can become popular with time.
Where to View Your Credit Score
You can request a copy of your VantageScore from platforms like the Experian website for a small fee. It has vital information and a simple calculator that will help you understand the impact of your score changes. Equifax is another platform where you can ask for your FICO credit score copy. It comes with very informational materials and a guide to boost your credit rating.