There are two major scoring models in the U.S. credit industry: FICO® -the industry leader- and VantageScore®. You may not have heard of the VantageScore, but it was designed by the three credit reporting agencies several years ago and is gaining in importance, partly because this score works with all three credit reporting agencies. Whereas you may have a slightly different credit score when it comes to your FICO, your VantageScore will be the same with all three agencies. Currently, it exists in all credit categories except the mortgage market, but it’s still important for you to know about.
See, the VantageScore can help people get credit that they can in turn use later to get a mortgage, for one thing. The VantageScore provides credit scored for the millions of adult consumers who have shied away from taking out lines of credit. It provides credit scores for this group. It’s highly predictive and consistent. Without it, many millennials wouldn’t be able to get approved for auto loans, because they have virtually no credit history. Many believe that student loans will benefit their credit scores, but credit agencies look especially at lines of credit that are current. When Millennials manage to pay off their student loans, those lines of credit close and many Millennials, shy of taking on debt, never get more credit.
Here are some differences between the current FICO and VantageScore methods:
- VantageScore uses one three-bureau model.
- FICO uses three one-bureau models.
- FICO required credit accounts older than six months with prior activity too.
- VantageScore can produce a score even with one account.
- VantageScore can produce a score even with accounts younger than six months old.
- FICO scores range between 300 and 850 with a good score being 670.
- VantageScores recently upgraded to a 300 to 850 range but, you will shoot for a score of at least 670.
- VantageScore also checks to see if you usually only make minimum payments.
- FICO ignored the fact that you might make only minimum payments.
- The most recent FICO ignores collections accounts with unpaid balances under $100.
- The most recent VantageScore considers collections accounts with low balances.
- VantageScore doesn’t generate industry-specific scores.
- FICO can produce industry-specific scores.
Late last year, the FHFA, which oversees Fannie and Freddie, considered allowing the use of another credit-scoring system besides just the FICO for mortgage considerations. VantageScore is able to assign a credit score to about 30 million more consumers than FICO. Of those 30 million, around 7.6 million of those potential homebuyers would likely be eligible for a Fannie or Freddie mortgage.
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