Your credit score is a vital number that impacts many aspects of your financial life. Whether you’re applying for a loan, renting an apartment, or looking to get a new credit card, your score can influence the outcome of these decisions. While many people are familiar with the concept of credit scores, not everyone understands that there are different models used to calculate these scores. The two most widely known models are FICO and VantageScore—each with its own approach to interpreting the information found in your credit report.
The Basics of Credit Scoring
All credit scoring models rely on the information in your credit report to determine your score. This report includes key details such as your payment history, the amount of debt you owe, the length of your credit history, types of credit accounts you have, and recent credit inquiries. Based on this data, the scoring models calculate a number, usually ranging from 300 to 850, that represents your creditworthiness. The higher the score, the better your credit.
However, while the fundamental information is the same, the way each scoring model interprets and weighs this data can differ. In fact, the differences between models like FICO and VantageScore can have a significant impact on your score and your ability to secure credit.
The Role of Hard Inquiries
One of the key areas where credit scoring models differ is in how they treat hard inquiries. A hard inquiry, or a “hard pull,” occurs when a lender checks your credit report in order to make a lending decision. Examples include applying for a mortgage, car loan, credit card, or even a new apartment lease.
Hard inquiries are not ideal, as they can cause a small dip in your credit score. The reasoning behind this is that multiple inquiries within a short period can indicate that you’re seeking credit more urgently, which can be seen as a risk factor by lenders. However, it’s important to note that not all hard inquiries are treated equally by the various scoring models.
FICO vs. VantageScore: How They Handle Multiple Inquiries
Both FICO and VantageScore understand that people who are shopping for a mortgage, auto loan, or student loan might submit multiple credit applications within a short time frame to compare rates. To prevent these applications from unfairly hurting your score, both models allow for a certain level of flexibility.
For FICO, if you submit multiple applications for the same type of credit—say, for a mortgage or auto loan—within a 45-day period, all those inquiries will be counted as a single inquiry for scoring purposes. This means that even though you’re technically applying for several loans, FICO only treats it as one instance of credit-seeking behavior. The idea behind this is that rate-shopping for large loans, like mortgages, shouldn’t harm your score the way applying for a dozen new credit cards would.
On the other hand, VantageScore has a slightly shorter window. It counts all applications within a 14-day period as one inquiry, but only if the inquiries are for the same type of credit. So, if you’re shopping for a car loan, VantageScore will treat all those applications in the same way as long as they occur within two weeks.
This difference in how long inquiries are grouped together can result in slightly different scores between the two models. If you apply for several loans within a month and use a FICO score to assess your credit, you might see less of a dip compared to if VantageScore were used. While the effect might not be substantial, it can be meaningful in certain situations.
The Importance of Knowing Your Model
Understanding the differences between these credit scoring models is crucial because they can affect your credit score and how lenders perceive you. If you’re aware that your score can fluctuate based on the model being used, you’ll have a better idea of what’s going on when you apply for credit or loans. For example, if you’re applying for a mortgage and a lender uses FICO but you’re viewing your score through a VantageScore model, you might find a slight difference in the results.
It’s also important to understand that these models are not static—they can change over time. For instance, FICO has made updates to its scoring models (such as FICO 8, FICO 9, and the newer FICO 10) to better account for emerging credit trends, like how lenders view medical debt or collections. Similarly, VantageScore has also evolved, incorporating new factors and methodologies to improve accuracy.
Other Key Differences Between FICO and VantageScore
Beyond how hard inquiries are handled, FICO and VantageScore also differ in how they prioritize certain factors when calculating your credit score. Here are a few examples:
- Payment History: Both FICO and VantageScore weigh your payment history heavily, but FICO generally places a slightly higher emphasis on it, making it a more dominant factor in your score.
- Credit Utilization: Both models use credit utilization (the ratio of your credit card balances to your credit limits) to assess risk. However, FICO tends to give more weight to this factor, while VantageScore may be a little more lenient, especially if you have other positive credit behavior.
- Recent Credit Behavior: VantageScore tends to place a greater emphasis on recent credit behavior, such as whether you’ve opened new credit accounts recently. FICO also considers this, but it might not weigh it as heavily as VantageScore does.
Conclusion: No “One Size Fits All”
While FICO and VantageScore are the two most well-known credit scoring models, they are not the only ones that exist. Other lenders may use proprietary models, and some credit scores may be based on even more specific criteria, depending on the lender or the type of credit you’re applying for.
Ultimately, it’s important to recognize that credit scores are just one piece of the financial puzzle. While both FICO and VantageScore are valuable tools for assessing creditworthiness, understanding how each model works can help you make more informed financial decisions. Keep an eye on your credit report, monitor your score regularly, and be mindful of the differences in scoring models when you apply for credit. With this knowledge, you’ll be in a better position to improve and maintain your credit health.
