It’s been seven years since VantageScore appeared on the credit scoring scene to challenge Fair Isaac Corporation (FICO), following years of FICO’s dominance that led to its credit bureau risk scores becoming the industry standard for lenders making prescreened credit offers, approving or denying applications for new credit, and managing their existing credit accounts. (Full disclosure: I worked for FICO for 16 years).
While consumers are still more likely to see their credit applications evaluated by FICO than Vantage when applying for different types of credit, they are, at the same time, most likely to receive Vantage scores when ordering their credit reports from the major consumer reporting agencies (CRAs): Equifax, Experian and TransUnion.
This emergence of two big players where once there was only one can’t help but lead to comparisons between FICO and Vantage, particularly when finding a large point spread between FICO and Vantage scores. Hopefully, by identifying and closely examining some of these differences, you’ll be able to keep on track toward a better credit rating, regardless of what scoring system is used. Note that my comparisons are based on the most recent versions of each.
1. The Scoring Models Are Different
FICO bases its credit scoring models on credit reports belonging to millions of anonymous consumers obtained separately from each of the three CRAs. They then build a separate model for each CRA based on that agency’s data. FICO scores range from 300 to 850, with higher scores indicating lower risk.
Vantage, on the other hand, develops its credit scoring models using a combined set of consumer credit files from the three CRAs to come up with a single formula for use by all three. Vantage scores range from 501 to 990, with, just like FICO, higher scores equating to lower risk, and unlike FICO, letter grades from A to F.
2. Credit Scoring Requirements Differ
Not everyone has a credit score, since any scoring formula requires at least some amount of credit experience upon which to base its predictions. And for those of us who do have credit scores — whether FICO or Vantage — there are many different ways to obtain a copy of them.
While many of the differences between the two makes of credit score are minor, some of the bare minimum requirements needed to create a score differ substantially between FICO and Vantage, with FICO requiring at least six months of history and at least one account reported in the past six months, and Vantage only requiring one month of history and an account reported to the CRA within the past two years. As a result, Vantage is able to score millions more consumers, which is good news for those new to credit or who have not been using credit recently.
Even the websites that offer credit scores to consumers differ in their offerings. Equifax and TransUnion FICO scores can be purchased at MyFICO.com, with Equifax FICO scores also available at Equifax.com. Experian and TransUnion Vantage scores are available at Experian.com and TransUnion.com, respectively. While Experian FICO and Equifax Vantage scores are not generally available to consumers, Credit.com features Experian and VantageScores as part of its Free Credit Report Card.
3. Late Payments Are Not Created Equal
Fundamentally, both FICO and Vantage look at accounts having a history of late payments in similar ways, particularly in terms of:
- Recency: How long ago the most recent late payment occurred.
- Frequency: How many accounts on the credit report have experienced late payments.
- Severity: How many payments were missed on an account.
One difference between the two models, however, is that while FICO treats all late payments — regardless of the type of account — similarly, Vantage “penalizes” late mortgage payments more than it does other types of credit. As a result, if you’re late on your mortgage, that late payment may more seriously impact your Vantage than your FICO score.
4. How Inquiries Are Counted Can Differ
While hard credit inquiries impact both Vantage and FICO scores only minimally — especially when compared with other, more serious, scoring factors — each scoring model offers consumers a benefit not provided by the other when multiple inquiries appear on a credit report for a single purchase.
While both treat multiple inquiries posted within a focused period of time as a single inquiry, they differ in their “deduplication” methods, as:
- FICO uses a 45-day span, while Vantage uses 14 days.
- Vantage applies this special treatment across all types of credit (cards, autos, etc.), while FICO only applies it to mortgage, auto and student loans.
Again, inquiries don’t have a major scoring impact, but when a score is just a couple of points lower than it needs to be to qualify for a mortgage, understanding the ways in which multiple inquiries are counted can be important.
5. Low-Balance Collections May Affect One and Not the Other
When it comes to scoring third-party collection agency items on a credit report, Vantage minimizes the scoring impact on debts of $250 or less, while FICO treats all collection accounts over $100 the same, but ignores entirely all collections under $100. However, with the FICO score, this is so only with its newest version, FICO 8, which is not yet used for most scores that consumers will receive. Until the newest version is more widely adopted, you may or may not see the benefit of this reflected in your score.
In concluding this FICO/Vantage comparison, it’s as good a time as any to remind ourselves that regardless of the scoring model it’s still all about making all payments on time, keeping balances low and only applying for new credit when necessary; yet when every point counts, knowing some of the subtleties of credit scoring can make all the difference in the world.
This article was updated Jan. 25, 2013 at 12:26 p.m. to specify that the comparisons are based on the most recent versions of FICO and VantageScore.
Image: Ksayer1, via Flickr