FICO Score vs. VantageScore: What's the Difference?

In the world of credit, two names dominate the landscape: FICO and VantageScore. Both are credit scoring models that lenders use to assess a borrower's creditworthiness. While they share the common goal of predicting a consumer's likelihood of repaying debt, they have distinct differences in their methodologies, requirements, and how they weigh various credit factors. Understanding these differences is crucial for anyone looking to build, manage, or repair their credit.

This article will provide a comprehensive comparison of FICO and VantageScore, helping you understand why your scores might differ and what each model prioritizes.

The Tale of Two Scores

FICO, which stands for Fair Isaac Corporation, is the older and more established of the two. It was first introduced in 1989 and has since become the most widely used credit score by lenders, particularly in the mortgage industry. According to FICO, 90% of top lenders use their scores in lending decisions [1].

VantageScore, on the other hand, is a newer player, created in 2006 as a joint venture by the three major credit bureaus: Experian, Equifax, and TransUnion. It was designed to be a more predictive and inclusive scoring model, and it has been steadily gaining market share.

Key Differences Between FICO and VantageScore

While both models aim to predict the same outcome, their underlying algorithms and rules differ in several key areas. These differences can lead to variations in the credit scores you see from each provider.

Scoring Model Architecture

One of the most fundamental differences lies in their model architecture. FICO develops bureau-specific models. This means that FICO Score 9, for example, has three slightly different versions—one each for Experian, Equifax, and TransUnion. In contrast, VantageScore uses a single tri-bureau model that can be applied to the credit data from any of the three major credit bureaus, aiming for more consistency.

Minimum Scoring Requirements

VantageScore is often able to score consumers who are new to credit, sometimes referred to as being "credit invisible." To generate a FICO score, you typically need to have at least one credit account that has been open for six months or more, and at least one account that has reported to the credit bureaus within the past six months. VantageScore, however, can often generate a score with just one account, even if it is less than six months old [2].

Treatment of Hard Inquiries

When you apply for new credit, it results in a hard inquiry on your credit report, which can temporarily lower your score. Both models account for "rate shopping" by treating multiple inquiries for the same type of loan within a short period as a single event. However, the timeframes and loan types differ:

FICO typically uses a 45-day window but only for mortgage, auto, and student loan inquiries. VantageScore uses a shorter 14-day window but applies it to all types of credit inquiries, including credit cards.

Handling of Collection Accounts

The way collection accounts are treated also varies significantly, especially between different versions of FICO scores:

The newer FICO 9 model disregards paid collection accounts entirely and gives less weight to unpaid medical collections. The widely used FICO 8 model, however, still considers paid collection accounts as negative. VantageScore 3.0 and 4.0 are more forgiving, ignoring all paid collection accounts and even unpaid medical collections [2].

Conclusion: Which Score Matters More?

While FICO remains the dominant player, especially in mortgage lending, VantageScore's adoption is growing. The truth is, both scores matter. The specific score that a lender uses will depend on their industry, their internal policies, and their relationship with the credit bureaus.

Instead of focusing on one score over the other, it is more productive to focus on the underlying behaviors that lead to good credit health. Paying bills on time, keeping credit card balances low, and only applying for credit when needed will positively impact all your credit scores, regardless of the model used.

References

[1] myFICO. "How are FICO Scores Calculated?"

[2] Experian. "The Difference Between VantageScore Credit Scores and FICO® Scores."