What's Going on with Your Credit Score? Navigating the FICO and VantageScore

Have you ever looked at your credit score before going to buy a new car or home only to see an entirely different score provided at the dealership or by the loan officer? That’s because the credit scores you see online, whether on CreditKarma.com, Experian.com, or through your credit card company, are based on different scoring models and versions. It’s confusing so let’s break down these differences and dig into the key categories that determine your credit score including who issues your score and the reason behind scoring variations.   

The Credit Bureaus 

Regardless of which scoring model and version your lender uses or which platform you use online, your credit score is issued by three major credit bureaus: Experian, Equifax, and Transunion. They are responsible for issuing a credit score based on reports of your credit management activity that are received from your mortgage lender, credit card company, landlord, public records (i.e. bankruptcy), financial institutions, and more. Each bureau will issue a different score based on this obtained information and the model they are using. Their scoring systems are distinct, often resulting in one bureau providing a high score, the other a low score, and the other one somewhere in between.  

The FICO Score: 

FICO stands for the Fair Isaac Corporation, first developed and used by lenders since 1989. Over the last two decades there has been an influx of competing FICO score models from Score 2 to Score 10T. The FICO score has been updated because of changes in behaviors and increased usage of the score. FICO scores 8 and 9 are most widely used; however, your local dealership may still be using an outdated version like the FICO score 5. Score usage is dependent on when financial institutions upgrade to the latest scoring model.  

The following five categories account for how your FICO score is determined: 

Payment history: 35% 

Amounts owed: 30% 

Length of credit history: 15% 

New credit: 10% 

Credit mix: 10% 

The Vantage Score: 

The VantageScore 1.0 was developed and released by Equifax, Experian, and TransUnion in 2006. Currently, there are five scoring models with the release of VantageScore 5.0. Like the FICO score it considers five factors, plus one, your available credit. The following six categories account for how your credit score is determined: 

Here’s how the VantageScore 3.0 (think CreditKarma) model weighs factors impacting your credit: 

Payment history (40%) 

Depth of Credit (credit mix and length of credit) (21%) 

Credit utilization (20%) 

Balances (11%) 

Recent Credit (5%) 

Available credit (3%) 

You may have noticed that credit utilization – which only refers to credit cards, not home/vehicle loans – for the VantageScore drops to 20% and payment history increases to 40% whereas the FICO score rates these categories at 30% and 35% respectively. The VantageScore was designed to be more inclusive of and predictive of credit activity. Therefore, they have placed a higher importance on payment history, and less on credit utilization. 

Why are the scores different? 

Now that you know what distinguishes FICO from VantageScore, let’s look at why you have a different credit score from each bureau: 

The 14-day vs. 45-day reporting window: 

FICO scores 8-10T count multiple hard inquiries in a 45-day window for major loans, such as a home or vehicle, as one.  

VantageScore provides a 14-day window. 

You ran a hard credit check: 

If the lender pulled your credit report from only one bureau, the activity will not appear on other credit reports. 

Outdated information: 

Sometimes lenders may only report to one or two credit bureaus. Additionally, one bureau may not have removed information that should have fallen off your credit report after seven years.   

Length of Credit History: 

You’ll need to have an account for six months for FICO to generate your score. 

VantageScore may only need account activity for one month to generate your score.  

Medical Collections: 

FICO 8 does not ignore paid collection accounts. FICO 9 does ignore paid collection accounts.  

VantageScore 3.0 and 4.0 ignore paid collection accounts as well as unpaid medical collection accounts, regardless of their balance. 

While both models may rate your credit score differently, they each have a credit range of 300-850. It is recommended that consumers aim for at least a 760-credit score. In both models this will place you in the ‘Very Good’ and/or ‘Great’ categories. Achieving a high credit score is possible and it is important that you know the differences between each scoring model, the reason for their existence, and how each credit bureau issues your score. Always check your credit prior to purchasing a vehicle, home, or applying for a credit card. You don’t want to be taken by surprise and learn your credit score is in a bad range, specifically 650 or below. When trying to determine which steps are best for you, do your research, and remember to seek out professional advice when necessary. 

Samuel Molina is an Accredited Financial Counselor® and CEO and Founder of The Academy of Financial Education, a non-profit organization dedicated to narrowing the wealth gap for its community through activities, coaching, education, and instruction. Visit Samuel’s FindAnAFC profile to view his services and connect with him on LinkedIn.