No single credit rating agency provides a credit score for an individual valid throughout the world. Lenders contact various credit rating companies for credit reports to make the final decision of granting the funds. Creditworthiness checking is a lucrative business, and there are many participants like Experian. TransUnion, Equifax, etc., with its own models and credit report names. Continue reading to discover various credit rating reporting models, their underlying calculation methods, and differences in this ultimate guide for FICO score vs. credit score.
What Is a Credit Score?
The financial lending institutions know how responsible you are with your debt and credits with the help of a credit score. Such a score is a numerical representation of your financial health. When the credit score is high, you borrow and repay on time. On the contrary, when you struggle to repay debt obligations, the score dips. Credit unions like Equifax, Experian, and TransUnion collect information for an individual or a business on the following headers to calculate a credit score:
Identity like social security number (SSN), name, date of birth, etc. An itemized list of loans, credit cards, and credit lines. Public records like bankruptcy filings, judgments from courts, and lien. Prior credit file requests from businesses and individuals.
All the three big credit unions in the USA use different creditworthiness models to allot a credit score. Hence, you will always find different credit ratings from different institutes on the same business or individual.
The Meaning of Different Credit Score Ranges
Under 350 credit rating means no credit history. You must speak with a lender to get them to issue you a personalized credit account with a comfortable repayment plan. 300 to 579 denotes a highly deteriorated credit history. The individual might have failed to pay on time for many credit accounts. If you can repay all the debts with interest, you may be able to repair such credit ratings. 580 to 669 credit score is a fair range. Lenders may offer you new credit accounts, but the underlying interest will be higher. If your credit rating is between 670 to 739, you are in good status. However, you may find it challenging to get unsecured loans at competitive interest rates. When you pay all the bills like credit cards, utilities, auto insurance, and rent on time, you can secure a 740 to 799 credit rating. 800 to 850 credit rating signifies you are a low-risk borrower, and you have no dents in your credit accounts’ history. You will qualify for the lowest interest rates for any credit account in the USA.
What Is a VantageScore?
The three major consumer credit bureaus, Experian, TransUnion, and Equifax, created the VantageScore (300 to 850) creditworthiness calculation method in 2016 to eliminate the monopoly of the FICO scores. In FICO score vs. credit score, the VantageScore plays a major role in reporting someone’s credit ratings and helping the individual improve their scores when necessary.
Calculation Method for VantageScore
When calculating this score for a credit applicant, credit unions evaluate the following data: #1. The entire payment history of all credit accounts. It has a weightage of 40%. #2. The type and age of credit accounts are also a deciding factor, and it holds 21% in weightage. #3. Your credit utilization history is also crucial. VantageScore gives 20% weightage to this record. #4. With 11% weightage in the overall credit score, the total balance is also a vital factor. #5. Your recent behavior of credit account application holds 5% weightage. #6. And finally, the remaining 3% is covered by the available credit data.
The Table of VantageScore Score Slab and Ratings
According to the VantageScore version 4.0, the followings are the credit ratings against their credit scores:
What Is a FICO Score?
Today, about 90% of American lenders use this creditworthiness model. The Fair Isaac Corporation came up with the model in 1989, hence its name FICO. FICO score is the vital component of assessing a credit account applicant when it comes to real estate mortgages. Apart from real estate, it also has different versions of models to cater to other industries like credit cards, auto loans, etc. Hence, the FICO score of one industry will differ from another. Further, the FICO score ranges from 300 to 800.
The Calculation of a FICO Score
Fair Isaac Corporation utilizes a proprietary credit rating calculation model to show a credit score. However, the experts of this industry consider the following financial data responsible: #1. Timely payments of all credit account obligations hold 35% weightage. #2. The amount owed is the second most crucial metric, and it has a weightage of 30%. #3. FICO gives a weightage of 15% to the age of credit when it calculates your credit score. #4. You should have a mix of installment and revolving credit accounts (credit mix), and this holds 10% weightage. #5. The final 10% of the credit score depends on new credit account applications. Hence, if you frequently apply for loans, you will see a dip in your credit score.
The Table of FICO Score Slab and Ratings
Various Versions of FICO Scores
Due to the different operational models for the big three credit unions of the USA: TransUnion, Experian, and Equifax, there are different FICO versions. Additionally, the various types of FICO scores are useful in different lending industries as a whole or partially. For example: FICO 2 FICO Score 2 is the dedicated metric to check your creditworthiness when you apply for mortgages, credit cards, and automobile buying loans. Experian publishes several types of FICO 2 like FICO Auto Score 2, FICO Bankcard Score 2, and FICO Score 2 (mortgage). FICO 3 When credit card issuers contact Experian for your credit rating, they get the FICO 3 score card. Depending on its health, the lender grants or denies your application. FICO 4 For mortgages, credit cards, and auto loan processing via analysis of credit reports from TransUnion credit bureau, lenders rely on FICO 4. Various types of FICO 4 are FICO Auto Score 4, FICO Bankcard Score 4, and FICO Score 4. FICO 5 For auto loans, credit cards, and mortgage credit account decision-making Equifax publishes three different kinds of FICO 5 scores. These are FICO Auto Score 5, FICO Bankcard Score 5, and FICO Score 5. FICO 8 FICO 8 is common among all the three major credit unions. You can get specialized versions like FICO Auto Score 8 and FICO Bankcard Score 8 for the auto and credit card industry. FICO 9 All three big credit bureaus publish FICO 9 scores of individuals. The FICO Score 9 is standard for most lending decisions. However, FICO Auto Score 9 is specific to the auto sector, and FICO Bankcard Score 9 is a dedicated model for the credit card sector.
The Most Used FICO Version
According to the declarations from the Fair Isaac Corporation, FICO Scores 8 and 9 are the most commonly used FICO model in the USA. Most of the lending sectors, like credit cards and auto loans, require these credit rating numbers.
FICO Score Vs. VantageScore: Differences
#1. VantageScore is a clear indication of your credit health. Also, it helps you improve your credit history by suggesting you some tips and tricks. On the other hand, the FICO score simply indicates a credit score and nothing else. #2. VantageScore has 4 credit rating slabs while FICO score has 5 slabs. #3. VantageScore and FICO scores consider different financial records and their weightage to calculate the final credit score. #4. You can easily qualify for a VantageScore if you have any credit account, irrespective of the credit age. On the contrary, for a FICO score, you need to have a mix of credit accounts like a line of credit, loans, credit cards, etc., that are at least 6 months old.
FICO Score Vs. VantageScore: The Most Popular One
FICO score has been in the financial lending system for longer than the VantageScore. Hence, it has naturally gotten much more exposure than its competitor. Also, government-sponsored home loan securitization enterprises like Freddie Mac and Fannie Mae have only approved the FICO score to be the determining factor when issuing retail home loans. Now that you’ve gone through the theoretical basics of credit score, FICO score, and VantageScore, find below some online tools that will help you:
myFICO
Across the USA, 90% of lenders and financial institutions use FICO scores to disburse loans, auto loans, credit cards, and mortgages. The parent company goes with the same name FICO and has created a consumer division known as myFICO. Its mobile and online app let you compare various credit reporting models like TransUnion, Equifax, Experian, 3-bureau credit report, and FICO side by side. Thus, you get a good oversight of your personal FICO score vs. credit score for finances and repayment of borrowings. It also helps you recover from identity theft cases, updates you on real-time credit score changes, and detects identity theft cases in advance. All of its services are available in different slabs at separate paid subscription plans.
Experian
Experian is one of the leaders in financial data analysis and allotting a creditworthiness score for individuals, professionals, and businesses. It offers various services to enable smooth credit distribution by lenders to a prospective individual or business. Some notable services are:
Free Credit Reports and Score Personal and Family-Wise Identity Theft Protection Free Dark Web Scan An online marketplace for auto insurance, loans, and credit cards FICO score vs. credit score
Also, to help the consumers from credit disputes and mismanagement of finances, it offers credit support and credit rating education.
WalletHub
WalletHub is another online tool for staying on top of your credit reports, credit scores, credit monitoring, and credit cards. Furthermore, most of the services on this financial services platform are free for individuals and businesses. One cool feature of this tool is you can generate your credit score even if you do not possess any credit cards. Its personal wallet also showcases other data related to credit score improvements, WalletScore, 24/7 Credit Monitoring, Full Credit Reports, and many more. Moreover, you can also get insights on various credit cards before applying, especially if you are a new applicant. Finally, it adds value to your effort by providing a one-stop shop for mortgage companies, credit unions, prepaid cards, banking services, real estate agents, etc.
CreditWise: Capital One
Whether you are a business, professional, or an individual who wants to monitor credit ratings for free without hurting it can try CreditWise from Capital One. The tool is available online through web browsers, Android, and iOS devices. It primarily assists you in managing and understand the VantageScore creditworthiness report. Hence, in FICO score vs. credit score, if you prefer the VantageScore, you may sign up.
How to Repair Your Credit Score
A low credit score is not good for your financial life since it can negatively affect many aspects of your life. You may not find suitable rented accommodation. Sometimes insurers and employers may not want to deal with you either. Mostly, there could be negative items or machine errors that affect the score. Hence, you need to recruit the best FICO, VantageScore, or Credit Score specialists. One such credit repair service provider that you can try is The Credit Pros. The company offers competitive credit repairing fees, financial tools, and expense monitoring programs that save you from late fees and protects your credit score from identity theft cases.
Final Words
This in-depth article on FICO score vs. credit score will help you understand some popular credit rating models that credit card, mortgage, and personal loan lending agencies use to determine your creditworthiness. You may also be interested to learn which are the best personal finance Excel templates available for free to manage finances the right way.
