VantageScore vs FICO: Differences, Methods, Ranges

Credit scores were created for the benefit of the lender, not the consumer. They tell the lender whether a loan applicant is trustworthy and reliable, or risky and irresponsible. But these scores can also be used by the consumer to better understand how lenders perceive them.

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Every consumer has a credit score, a specific number tied to their activity and their history, and this can be found on an individual’s credit report. It’s designed to be simple for both parties and to provide a quick and convenient way to determine an individual’s creditworthiness and monitor their financial situation.

However, individuals are often confused by the fact there are multiple credit reporting agencies and two major credit score algorithms. With that in mind, let’s look at how VantageScore and FICO Score compare and detail how these two credit scoring services operate.

FICO Score

Fair Isaac created the FICO Score in the 1980s (FICO originally stood for Fair, Isaac and Company, but the organization has since changed its name to Fair Isaac Corporation). In the mid-90s, it was used by both Freddie Mac and Fannie Mae during the mortgage application process and before long it became the gold standard of credit scoring systems.

The FICO Score remains the most common credit scoring system and is used by banks, credit card providers, and other lenders. The score is generated by a credit report, which is processed by one of the leading credit bureaus, and can differ from report to report due to the variances in how information is processed by different bureaus.

FICO Scores generally range from 300 to 850, with 300 being the lowest/worst and 850 being the highest/best. There are other variants of the FICO Score used, including the FICO Auto Score, which has a range of 250-900, but the Classic/General FICO Score is the one that most consumers are familiar with.

According to a 2019 report, the average score is 706, which is considered “good”. Anything below 620, however, is considered “bad”, and countless American consumers are struggling with such a score.

VantageScore

The VantageScore credit scoring system was established as a joint venture between the three leading credit bureaus (TransUnion, Equifax, and Experian). It was launched in 2006 under the name VantageScore Solutions, LLC, which is owned by the aforementioned companies.

VantageScore was created to standardize credit scores across the main bureaus. There have been several iterations of the scoring system since its launch, with VantageScore 3.0 being the most popular and widespread (there is a VantageScore 4.0, but 3.0 remains more common).

Unlike previous versions, VantageScore 3.0 adopted the same scoring range as FICO (300-850), thus simplifying the process for consumers.

VantageScore vs FICO: The Algorithms

Your credit score is calculated based on a variety of factors and is ever-changing and readily accessible. The two credit scoring systems use similar algorithms to generate your score, but with a few slight differences.

A FICO Score is calculated based on the following parameters:

  • 35% Payment History
  • 30% Debt vs Credit
  • 15% Credit History
  • 10% Types of Credit
  • 10% New Accounts

Read the following guide for more in-depth information on how a FICO Score is calculated.

As for VantageScore, it is calculated (roughly) as follows: 

  • 40% Payment History
  • 20% Age/Type of Credit
  • 20% Credit Utilization
  • 10% Credit Balances
  • 10% Recent Credit

At first glance, these two algorithms seem vastly different and there are certainly some areas where that is the case. However, they are both heavily reliant on Payment History, which is determined by whether or not you meet your monthly repayments, and Credit Variety/Age.

VantageScore includes Credit Balances and Credit Utilization, which is rarely mentioned with regards to a FICO Score. However, these two factors are basically the same thing as the Debt vs Credit. In Debt vs Credit, for instance, your FICO Score will look at how much credit you have available versus how much of this is being used, which is also known as Credit Utilization.

Benefits of VantageScore versus FICO Score

There are some key areas in which VantageScore differs from FICO Score and the main one affects consumers with very little credit history. With a FICO Score, you generally need to have at least 6 months of processable data before you will be given a score. With VantageScore, you may be given a score with just 1 account being active for just 1 month.

VantageScore is more willing to ignore collections that have been paid in full. This is also true for some new models of the FICO Score, but many older models are still in use that do not dismiss collections so easily.

VantageScore versus FICO Score: Which is Better?

VantageScore was created by credit bureaus, who it’s fair to say have a lot of experience when it comes to collecting, organizing, and reporting on financial data. It was designed to make their lives easier and to give lenders a more accurate and reliable score, while also giving consumers a little more consistency.

However, both VantageScore and FICO Score take the same things into consideration and provide very similar results. It’s rare for a consumer to have a good VantageScore and a bad FICO Score, or vice versa. In fact, unless there has been a major oversight or mistake, this simply won’t happen.

The Future of Credit Scoring Systems

We mentioned that VantageScore has undergone several transformations over the years, including a notable shift towards the same scoring range used by FICO. But FICO is also constantly evolving and improving. It adapts to changing trends and is constantly looking at ways to improve its accuracy and reliability.

Both of these scores will likely be around for many years to come and will no doubt experience a number of evolutions in the next decade or so. But regardless of how many times they change and how many iterations we see, the principle will remain the same: Extensive credit histories and minimal debt will generate good scores; extensive debt and minimal credit histories will generate bad scores.