Search VantageScore.com
PRESS ROOM: Read the news

When Your FICO Score Is NOT The Best To Track

by Neal Frankle

Published: August 2018

When Your FICO Score Is NOT The Best To Track

Most people concerned about their credit score only focus on their FICO number. As a result many throw away good money when they sign up for products and services the company sells.
Don’t get me wrong – the company that sells the FICO score (Fair Isaac) is honest and fair as far as I know. But that doesn’t mean you have to send them money for useless information.
I know this sounds like a bold statement – but have patience, read this post entirely, and if you don’t agree with me by the time you are done, let me know and let me know why. I’ll be happy to discuss further in the comments section below.
In order to understand what I’m saying, you have to know a little about the credit data industry.
How The Credit Information Industry Works
As consumers, we use our credit cards 30 billion times each year. And every time we do, the data is recorded. Who records this data? Glad you asked.
There are a number of companies that do but the 3 big companies that track our credit transactions are Experian, Equifax, and TransUnion. These companies are hugenormous and are referred to as CRAs (credit reporting agencies).
These CRAs collect data on the 30 plus billion transactions that consumers make every year and sell that data to companies who want to review your credit report before they offer you credit, a job, life insurance or whatever.
In addition, they also sell the information to credit scoring companies – like FICO. You might think FICO is the only credit scoring company out there but that’s not so.
The other major provider of credit scores is VantageScore. In addition, Quizzle, Credit Karma, Credit Sesame, Lending Tree, Credit Wise, Nerd Wallet, My Bank Rate, and Wallet Hub also market credit scores but they simply use the VantageScore number, massage it a bit and spit out a slightly different result.
Anyway, all the credit scoring companies mentioned above (including Fair Isaac) take our credit histories from the CRAs and assign a number (score) to represent how safe (or risky) they think we are as borrowers based on their own algorithm.
Vendors pay these credit scoring companies to obtain our scores. They use that score to decide whether or not to offer us credit and if so, on what terms.
As I said at the start of this post, FICO is the company most people think of when they think about their credit scores. But the credit reporting agencies thought they could do a better job than FICO at scoring consumers so they are the ones that created VantageScore.
As I said, there are also a number of other credit scoring companies which base their credit score on the number they get from VantageScore.
How Your FICO Score Differs From Your VantageScore
Lenders are all interested in one thing; will you repay your loan on time or not? Towards that end, they consider:
Have you made your credit payments consistently and on time in the past?
How long have you had credit?
What types of credit do you have?
What percentage of your available credit have you actually used?
How often are credit inquiries being made?
Although both FICO and VantageScore consider much of the same information, they gather their data in different ways. And they evaluate the information differently as well.
First, if you just started building your credit history, VantageScore will likely rank you higher than FICO (all things being equal). Unlike FICO (which requires six months history), VantageScore only requires one month’s history.
Also the VantageScore number is more dynamic. They pay attention to how your credit indicators are trending (are they improving, getting worse or staying the same) rather than just looking at your situation at a static point in time.
There’s more. VantageScore weights late payments differently than FICO and depending on your credit history, this could work to your benefit or detriment.
FICO treats all late payments the same. But VantageScore puts heavier penalties on late mortgage payments.
In other words, if you’ve been really good about making your mortgage payments but maybe not so good about making payments on other debts, your VantageScore might be higher than your FICO score.

Most people concerned about their credit score only focus on their FICO number. As a result many throw away good money when they sign up for products and services the company sells. Don’t get me wrong – the company that sells the FICO score (Fair Isaac) is honest and fair as far as I know. But that doesn’t mean you have to send them money for useless information.

I know this sounds like a bold statement – but have patience, read this post entirely, and if you don’t agree with me by the time you are done, let me know and let me know why. I’ll be happy to discuss further in the comments section below. In order to understand what I’m saying, you have to know a little about the credit data industry.

How The Credit Information Industry Works

As consumers, we use our credit cards 30 billion times each year. And every time we do, the data is recorded. Who records this data? Glad you asked. There are a number of companies that do but the 3 big companies that track our credit transactions are Experian, Equifax, and TransUnion. These companies are hugenormous and are referred to as CRAs (credit reporting agencies). These CRAs collect data on the 30 plus billion transactions that consumers make every year and sell that data to companies who want to review your credit report before they offer you credit, a job, life insurance or whatever.

In addition, they also sell the information to credit scoring companies – like FICO. You might think FICO is the only credit scoring company out there but that’s not so. The other major provider of credit scores is VantageScore. In addition, Quizzle, Credit Karma, Credit Sesame, Lending Tree, Credit Wise, Nerd Wallet, My Bank Rate, and Wallet Hub also market credit scores but they simply use the VantageScore number, massage it a bit and spit out a slightly different result.

Anyway, all the credit scoring companies mentioned above (including Fair Isaac) take our credit histories from the CRAs and assign a number (score) to represent how safe (or risky) they think we are as borrowers based on their own algorithm.
Vendors pay these credit scoring companies to obtain our scores. They use that score to decide whether or not to offer us credit and if so, on what terms.

As I said at the start of this post, FICO is the company most people think of when they think about their credit scores. But the credit reporting agencies thought they could do a better job than FICO at scoring consumers so they are the ones that created VantageScore. As I said, there are also a number of other credit scoring companies which base their credit score on the number they get from VantageScore.

How Your FICO Score Differs From Your VantageScore

Lenders are all interested in one thing; will you repay your loan on time or not? Towards that end, they consider:

  • Have you made your credit payments consistently and on time in the past?
  • How long have you had credit?What types of credit do you have?
  • What percentage of your available credit have you actually used?
  • How often are credit inquiries being made?

Although both FICO and VantageScore consider much of the same information, they gather their data in different ways. And they evaluate the information differently as well.

First, if you just started building your credit history, VantageScore will likely rank you higher than FICO (all things being equal). Unlike FICO (which requires six months history), VantageScore only requires one month’s history. Also the VantageScore number is more dynamic. They pay attention to how your credit indicators are trending (are they improving, getting worse or staying the same) rather than just looking at your situation at a static point in time.

There’s more. VantageScore weights late payments differently than FICO and depending on your credit history, this could work to your benefit or detriment. FICO treats all late payments the same. But VantageScore puts heavier penalties on late mortgage payments.
In other words, if you’ve been really good about making your mortgage payments but maybe not so good about making payments on other debts, your VantageScore might be higher than your FICO score.

Click here to read the full article from Wealth Pilgrim. 

KNOW THE SCORE

Current topics:

  • Celebrating a decade of disruption
  • Ten years, ten milestones
  • And much more
LATEST UPDATES:
August 2020
July 2020
June 2020
May 2020
April 2020
February 2020
BACK TO TOP
Valued partners:
CBA MBA
VantageScore Licensees:
Equifax Experian TransUnion