FICO Vs Credit Score: Comparing The Differences
Credit scores are three-digit numbers that reflect your financial history. There are different types of scoring models, but FICO is the most commonly used one. Many borrowers think its ratings and other scores are the same, but that’s not the case.
Read on for more details on FICO vs. credit scores.
Are FICO Scores And Credit Scores The Same Thing?
Credit scores are numbers used by banks to evaluate your creditworthiness. This rating can affect your ability to get approved for a card, personal loan, or mortgage. It can also affect the interest rates that you’ll pay for these loans.
In general, ‘credit score’ and ‘FICO score’ refer to the same thing. The only thing to note is that FICO is a type of scoring model. It’s short for Fair Isaac Corporation, which is the first company to offer a risk rating.
FICO ratings are based on factors like payment history, outstanding loans, age of accounts, new cards or loans, and account mix. Based on these criteria, the borrowers are assigned a number between 300 and 850. The higher the number, the better your chances are of getting the lowest rates.
FICO Vs. VantageScore Models
Another major scoring model is VantageScore. Here are the primary differences between these models:
- The difference in scoring: Though both use the same basic criteria, they gather their data in different ways. FICO gets its scoring model from reports on many consumers at once. Moreover, it gathers reports from three major bureaus and analyzes them to generate an accurate scoring model. Alternatively, VantageScore uses a single formula consisting of a mixed set of consumer files and a report from the bureaus
- Variance in scoring requirements: FICO requires at least six months of credit history and a minimum of one account reported to CRA in the last six months. On the other hand, VantageScore allows a shorter financial history
- Significance of late payments: Late payment history will impact both models. However, FICO will treat all payments the same, but VantageScore will judge them differently. The latter also penalizes late mortgage payments more harshly than any other factor
- Impact of credit inquiries: FICO has a 45-day shopping period. However, VantageScore has a rate shopping span of only 14-days
- Low-balance collections get influenced: FICO allows a little more leeway when it comes to low-amount collection accounts. If the original balance was under $100, it’ll ignore all collections. On the other hand, VantageScore ignores only paid collection accounts, regardless of the original balance amount
Other Proprietary Credit Score Models
The three national consumer bureaus offer their own proprietary scoring models. Lenders usually don’t consider these ratings to evaluate loan applications, hence these are also referred to as ‘educational credit scores’.
For instance, Experian uses a PLUS score, which ranges from 300 to 830. Similarly, another bureau Equifax uses its proprietary rating, which ranges from 280 to 850. In most cases, you’ll have to pay a fee for accessing these reports. TransUnion, another bureau, uses the VantageScore 3.0 model, which ranges from 300 to 850.
Why Choose FICO Over Other Credit Scores?
Here are a few reasons why you should choose this model over others.
- It’s the most widely used rating by lenders
- These ratings are used in 90% of lending decisions
- With this model, you’re prepared to know when to apply for financing
- It gives you 25+ years of experience with a rating that’ll help you meet your needs
- These numbers accurately predict risk, thus making it easy for lenders to assess requirements and affordability
- This model is trusted by the majority of the lenders
Bottom Line
Regardless of the differences between the different scoring models, you must maintain a good rating to be eligible for competitive loan rates and terms. Try to avoid any late payments and keep your utilization ratio low. Most importantly, review your report periodically to understand where you stand and how you can improve it.
