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If you have any type of knowledge about your credit, it’s very likely you’ve heard of credit scores. Your credit is so important, we’d imagine that nearly everyone is aware of the term “credit score.”
If you’re a little more experienced in credit, you’ve probably heard of a FICO score also.
Even if you’ve heard about credit scores and FICO scores, many people don’t know what the two mean, how they are similar and how they differ. Either way, we’re going to fill you in on everything you need to know.
Determining Credit Scores
FICO is the most widely used credit scoring system used by lenders. Credit scores that you get can be generated using a FICO® scoring model but it may also be other credit scoring models.
While FICO is the top credit scoring system, there are many companies that use scoring models to determine credit scores.
The top two credit-scoring models here in the U.S. are FICO and VantageScore.
Both FICO and VantageScore evaluate many of the same credit factors when looking at your credit reports and calculating the appropriate scores.
Your credit scores can vary a lot depending on the exact scoring model lenders are using and which consumer credit bureau report (Equifax, Experian, TransUnion) the scoring model is using information from.
What You Should Know About FICO
Since FICO is the top credit scoring system, it makes sense to understand how it works and what they look for when determining your FICO score. FICO, also known by Fair Isaac Corporation, was first established in 1989.
FICO quickly became one of the top credit scoring models and lenders began to prefer them over other models.
Today, FICO claims that more than 90 percent of the top lenders use FICO scores.
While this base scoring model is very popular, FICO also has industry specific scoring models, these are used by lenders for mortgages, credit cards and auto loans.
Since there’s a number of different credit scoring companies, it can be difficult to know exactly which scoring model they’ll use.
Why FICO is widely known as the most common model, that doesn’t mean all lenders use FICO scoring. This is something you want to keep top of mind if you’re trying to get an auto loan, credit card or apply for a mortgage.
Be sure to ask the lender what scoring model they use so you’ll know.
With the FICO base scoring model, scores are given in a range from 300-850.
FICO even tells you how their scoring system works. Here’s the 5 core factors that will make up your FICO score.
- Payment History - 35 percent
- Amounts Owed - 30 percent
- Credit History Length - 15 percent
- New Credit - 10 percent
- Credit Mix - 10 percent
The base scoring model for FICO is FICO Score 8. This is how they define credit scores.
- Exceptional Credit - 800-850
- Very Good Credit - 740-799
- Good Credit - 670-739
- Fair Credit - 580-669
- Poor Credit - 350-579
Now, industry specific FICO scores, which include FICO Bankcard Score 8 and FICO Auto Score 8 have a broader range of 250-900.
These specific scores are accounted based on your specific credit types.
Another Popular Credit Scoring Model Is VantageScore
While FICO may reign supreme in the credit scoring world, there is another giant in the space, it’s called VantageScore.
VantageScore was founded in 2006 as a joint venture of the 3 major credit bureaus, Experian, Equifax and Transunion. There are 4 VantageScore models, the latest model has scores ranging from 300 to 850.
In order to get your credit scores from FICO, you’ll need to have at least one account opened for 6 months or longer, or have one account reported to the major credit bureaus within the previous 6 months.
On the other hand, VantageScore may be able to offer more people credit by using only one month of credit history and one reported account in the last 24 months.
Just like FICO, VantageScore builds their credit scores off specific factors. Those factors are;
- Payment History: extremely influential
- Age and Type of Credit: highly influential
- Credit Utilization Ratio: highly influential
- Total Balances and Debt: moderately influential
- Recent Credit Behavior and Inquiries: less influential
- Available Credit: less influential
As you can see, these factors are very similar to those of FICO. Now, what about credit score ranges for VantageScore 3.0?
This is the model that Credit Karma uses to pull Transunion and Equifax credit reports. If you’ve signed up for a Credit Karma account, this is how they calculate your credit scores.
Those scores are as follows;
- Excellent: 750 to 850
- Good: 700 to 749
- Fair: 640 to 699
- Needs work: 300 to 639
The 3 Major Credit Bureaus Provide Credit Scores Too
Besides getting credit scores from FICO and VantageScore, you can also get credit scores from each one of the 3 national consumer credit bureaus.
This includes Equifax, Experian and Transunion.
Since many lenders usually don’t use these scores for credit decisions, they’re often called “educational scores” or “guidance scores” to give you a general idea of where you stand with your credit.
This is why we recommend getting signed up to FICO and VantageScore if you need to monitor your credit on a regular basis.