While deciding to approve or reject a credit application for a loan or credit card, the bank has the option to choose the credit score model. Fico scores are probably the most commonly used while vantage scores are the other popular score models. Both of these scoring systems have similar principles but are rather distinct in some aspects that influence consumers. Knowing whether the banks use FICO or Vantage score can help one prepare depending on the type of score that is used.
What does the acronym FICO stand for
Fair Isaac Corporation, which created the FICO rating system, is abbreviated FICO. First introduced in 1989, FICO's credit range runs from 300 to 850. Higher scores indicate less credit risk for lenders, hence the measuring scale is such that According to FICO, around 90% of the largest US lenders use FICO ratings in their credit determinations.
Although FICO offers numerous score models for use by lenders, the most often utilized FICO Score 8 is Introduced in 2009 this strategy analyzes credit report information falling into five fundamental categories: To begin with displayed in 2009, this approach analyzes credit report information in five fundamental categories:
35 percent of the general score is based on payment history, usually the foremost significant component in scoring. It appears how well you paid your earlier credit bills. Thirty percent of your score comes from a component called the credit utilization proportion. This evaluates the degree to which you're utilizing your entire spinning credit line—that is, the total sum of credit now given to you. Fifteen percent or so of the general score comes from credit history. This can be predicated on the length of time you've kept open credit accounts. The new credit contribution is ten percent. Opening different modern accounts rapidly and having a few existing ones might lower your score. The credit blend assimilates the final 10 percent as well. This component relates to the kind of credit offices you have among others credit cards, contracts, credit builder credits, and auto advances.
What is a VantageScore
VantageScore credit scoring system was developed in 2006 with the collaboration of the three major credit reporting agencies of the United States namely, Experian, Equifax, and TransUnion. This kind of model was supposed to ensure that the credit scores given in the three credit reports were consistent. VantageScores also range from 300 to 850.
A key similarity with FICO models is the basic methodology that underlies VantageScores. It also considers regular credit data including payment history, credit utilization, credit history duration, number of credit accounts, and credit inquiries within the last 12 months. However, the actual mathematical equations and proportions for scoring the factors are not the same between the two models. For example, VantageScores places:
Higher importance for the stable payment of rented housing and utilities – included in the “payment history” category. A decreased amount of attention paid to total debt amounts and closer attention paid to credit card balances about credit limits
Which Score do banks use FICO or VantageScores?
To answer this question briefly, the majority of lenders give preference to FICO scores rather than VantageScores to assess a loan or credit card applicant. A survey conducted by FICO in 2019 found that about 80% of lenders rely on FICO scoring models for credit decisions. Specifically, only 15 percent of the respondents revealed that they frequently use VantageScores.
There are a few key reasons why FICO scores remain more popular in the banking industry:
Experience - The models have been in use for decades to analyze credit decisions in banks. The efficiency of FICO algorithms and their predictiveness can hardly be questioned. Legal requirement – FICO scores are used to qualify mortgage applicants according to legal requirements set by government housing finance agencies such as Fannie Mae and Freddie Mac. This also assisted in the establishment of FICO as the standard in the market. Industry-specific scores – FICO uses various ‘FICO industry-specific scoring models’ that are designed to predict risk in sub-sectors that include auto loans and credit cards. This level of customization makes FICO scores more relevant in the various lending verticals. Brand identity - Fair Isaac devoted a lot of money to advertising FICO to consumers as a reliable reference for creditworthiness. Anyone familiar with credit currently has a significant understanding of the fact that a high FICO score is indicative of creditworthiness.
FICO scores are by far more commonly used compared to the VantageScores; however, the shares grow over time. This is because all three credit bureaus have embraced VantageScore which provides it with the aspects of scale and cost. Several credit monitoring companies now provide free VantageScores while they exclude full FICO score access for a fee. Thus, the consumers who actively monitor their scores would not be wrong to think that Vantage is at par with FICO. However, FICO is still king in the minds of the actual lending decision-makers.
Elevating your scores with one or both models
Currently, banks prefer FICO to VantageScores, but it is helpful for consumers to maintain both scores in good standing before applying for financing. The fastest ways to improve your scores under either model include: The fastest ways to improve your scores under either model include:
Always meet payment deadlines for all bills. Payment history issues significantly damage both FICO and VantageScores. Do not keep large amounts of money on credit cards. High balances are problematic even if the balance is paid off in full every month. Limit new credit applications. It is very unprofessional to open too many recent inquiries so you are seen as desperate/risky. Build long credit histories. Allow your accounts to be as old as possible.
Knowing both the FICO and the Vantage models, keeping track of both, and maintaining a good credit standing can help one get the mortgage, car loan, or credit card they want. Both scoring systems are beneficial for proper credit management in the long term.
Call now for expert credit repair services: (888) 803-7889
Read More:
How can I raise my credit score 200 points in 30 days?
What is the no 1 way to raise your credit score?
Who has the most accurate credit score?
Which credit score company do banks use?
