The underlying similarities between these credit rating systems are for lenders to be able to avoid risky borrowers. Until 2006, FICO which was formerly Fair Isaac Corp never had any close competition since coming into existence in the 1980s. As a point of entry, you already know what credit scores are and how important it is to your life. For the purpose of understanding the two, the following are the ways both are calculated.
However, you are probably in the dark as to which you should focus on and the differences between these two. The eight version of FICO which is the most used by lender considers 5 criteria in computing your credit scores;
- Payment history
- Total amount of credit
- Length of credit history
- New credit
- Account mix
On the other hand, since it 11 years of existence, Vantage score adopts its own criteria in determining credit worthiness;
- Payment history
- Percentage of credit used
- Age and type of credit
- Available credit
- Credit behavior
- Total balance and credit
Differences Between Vantage and FICO Scores.
These are the two giants when credit rating is concerned in United states. Understanding the key differences between these scoring systems will help to maintain a positive credit lifestyle regardless of which is considered;
- Different Scoring Models
FICO scores credit using a 300 to 850 range. This is reliant on credit reports which are retrieved separately from the three CRA’s; Experian, TransUnion, and Equinox. Each CRA has a separate model built for it by FICO. Vantage, on the other hand, uses a model which obtains a credit report from the three CRA’s jointly and has a single model for calculating the scores. Vantage score range from 501 to 990.
- Late Payments Are Treated Differently
Late payments are an important aspect of both FICO an vantage scores. They are considered based on the severity, recency, and frequency. The difference lies in the ways late payment is treated by the two. While FICO considers all late payment, in the same manner, Vantage sees late mortgage payment as more severe. Simply put, a late payment on the mortgage will have less impact on your FICO score than your Vantage score.
- Different Requirements On Credit Scoring
Minor differences are between the credit scoring requirements of the scoring systems. The length of credit history on the FICO score is around 6 months, while Vantage requires just a month of credit to compute the credit score. With this, Vantage is able to score more creditors than FICO. Fico scores are readily available on the CRA’s website but Vantage is not that accessible.
- Credit Inquiries
There’s a minimal impact by credit enquiries on both FICO and Vantage scores. The time span of credit enquiries on FICO is set at 45 days while Vantage makes use of a 14 days span for scoring. While Vantage applies this to all credit, FICO applies it to only student loans, auto loans, and mortgage.
- Low Balance Collections.
In relation to third party collection agency items on credit reports, all collection below $100 is ignored by FICO as it treats above $100 as the same. On the other hand, Vantage is based on $250 or less.
Creditors use your credit scores to determine your ability and capacity to pay back loans and credit. This numbers might look simple to you, but they are the keys to car insurance, loan interest rate, and even employability.
Vantage and FICO have risen to prominence in recent years, as more attention is paid to these two than any other. Both are reputed to give you a clear picture of your creditworthiness.
No need to debate it, bad credit cannot be described with “good” or anything synonymous with positive. Every facet of your life is dipped into the dirty mud of bad credit. Don’t even think of going near it with clean hands. It’s that scary aspect of a horror movie. Let’s rephrase, bad credit is a horror movie with you as the lead character. Nonetheless, there’s still an iota of truth with every lie. So also is bad credit, something positive can emerge. Bad credit can be positive for you in the following five ways;
Bad Credit Opens Your Eyes About How Important Credit is.
For you to have found yourself with a negative credit rating shows how unconcerned you’ve always being about your credit and finances. Hitherto, you didn’t realize the huge role credit plays in your life. At this point, you’ve reached a point of reality as credit determines every area of your life. You become fully aware of the importance of credit as it relates to where you live, what you drive, what you eat and even where you can work.
You wouldn’t have known this if you’ve never been there.
You Learn Good Credit Habits Consciously and Unconsciously
As you work and crawl your way out of bad credit score, you pick up credit lessons from a first-person point of view. You will never want to find yourself in that ditch again. While having a bad credit score, you imbibe the habit of running away from autonomous consumption, make payment as at when due and avoid unnecessary credit inquiries. All these follow you into a positive credit line, they become part of your financial virtues.
How you use your credit is everything, bad credit taught you that.
Bad Credit Keep You Off Credit and Borrowing
Your debt won’t be growing while you have a bad credit score. There’s a high probability that you won’t even think of any credit facility other than clearing off the ones you have already. By avoiding more debt and focusing strictly on paying off the present ones, you are about to get out of the credit zone. While you won’t be growing more debt, you are sending the right message to your creditors and the credit bureaus.
Zero Tolerance for more debt is the way out.
The Only Direction For Your Credit Score is Up.
Regardless of how bad your credit is, it can’t go worst anymore it can only get better. No matter how unconcerned you are about your credit ratings, it can’t be worse than it is already. By paying off your debt and cultivating a positive score lifestyle, you are rebuilding your finances. However, be wary of the mistakes that got you there and avoid them, they can get you down there anytime soon.
Just build it back, it won’t get worse than it is already.
You Learn To Live Within Your Means
Big mistakes are what triggers a bad credit score. Most times, you spend more than you earn. Sending your balance sheet into a red zone. At that rock bottom point, you learn to live within your means. A lesson to help build a better credit score, when you master the skills of living within your means, your financial woes becomes limited.
Rock bottom is a lesson on its own.