We know how important FICO scores are when it comes to lenders and creditors. But, is it the only scoring model being used? Not at all! You should know how FICO scores vs credit scores works next time you have a look at your credit report.
You might wonder why FICO scores are generally used by lenders when there are other measures of how good your credit score is. To answer this, there are some key-points you need to know about both the scales. First of all, credit scores can be generated without relying on FICO scoring model. One such example is that of VantageScore that may take in to account same factors but have a different calculating strategy.
How FICO Scores Work?
FICO scores have been offered in different versions. In addition, to the basic version, there are others like scores for auto leans, mortgage loans, credit cards etc. Calculating the base score will only take in to account your payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). This may seem a little complicated in the first look but you can read more about FICO score to sort out the confusion,
Did you know? “Lenders started using FICO® scores, created by Fair Isaac Corporation, in 1989, and the scoring models have been updated several times since. According to FICO, more than 90% of top lenders use FICO® scores.”
The base FICO score range can very between 300 to 850 where 850 is regarded as the highest achievable score. You can be offered different loan terms, interest rates and credit cards depending on how good your overall score is.
Poor: Below 580.
Fair: 580 to 669.
Good: 670 to 739.
Very good: 740 to 799.
Exceptional: Above 800.
FICO scores that have been devised for specific industries include Auto Score 8 and recently launched model of FICO score 9. These typically have a broader range of 250-900 although only specific types of credit considers these.
Other Credit Scoring Models
A number of other credit scores are considered by different credit bureaus. However, mostly lenders do not look at this score while making financial decisions therefore these are called “educational scores”. For example, Experian uses the PLUS score and Equifax offers Equifax credit score. These have ranges of 330 to 830 and 280 to 850 respectively.
One other credit score that has been followed widely is the VantageScore. this score uses just one month of credit history and considers one account that you have reported in the past 2 years. On the other hand, FICO score requires you to have atleast a 6-month old account and this should have been reported to all the three major credit bureaus. Currently, more than 2000 financial institutions make use of VantageScore. This is calculated considering payment history, type of credit, credit limit, total balances, total debt and the available credit.
Quick Summary! “VantageScore Solutions was created in 2006 as a joint venture of the three major consumer credit bureaus: Equifax, Experian and TransUnion. There are four VantageScore® models, and the latest, VantageScore® 4.0, uses a range of 300 to 850.”
Why You Should Choose FICO Scores
The Wall Street Journal states:
“For years, there has been a lot of confusion among consumers over which credit scores matter. While there are many types of credit scores, FICO Scores matter the most because the majority of lenders use these scores to decide whether to approve loan applicants and at what interest rates.”
There are a number of reasons you should opt for FICO score as compared to other credit scoring models. First of all, the best part is having a FICO score means you have the thing lenders which actually look at. They are the most widely used score around the globe. Creditors and lenders will look at your FICO score every time you apply for credit.
Secondly, FICO score will help you make better financial decisions. How is that so? 90% of the lenders consider FICO score when you apply so you will be better prepared. Other credit scores may be very different when you compare it with your current FICO rating. This variability can be confusing if different lenders consider different scores. As the Consumers Union report “score discrepancies can give consumers the false hope that they qualify for credit or low-interest rates when they do not. Consumers can face higher interest rates than expected, or be denied credit.”
FICO scores have also kept itself up to date and continue to accurately provide credit risk and an instant access to your on-going credit score. By keeping a FICO score you will always be ahead of industry-leading knowledge and have the expertise that most lenders and creditors trust.
Frequently Asked Questions About FICO Scores Vs Credit Scores
1. How do I know if I am using FICO score or non-FICO score?
Ans. According to BAV Consulting Survey “62% of consumers who received a non-FICO credit score mistakenly believed they received a FICO® Score.” You need to keep in mind that there is no substitute for FICO score. There are a number of sites that give your scores saying it is in FICO range but it is probably not. Therefore, you need to watch out.
2. Does a good FICO score affect the credit cards I can opt for?
Ans. Yes. A high score can help you get your hands on great cards. For example, the Chase Sapphire Reserve® and Citi® Double Cash Card. Good score also means you will be able to cash lucrative credit card offers and rewards.
3. Are scores variable across different credit bureaus?
Ans. Yes. The score can vary with different major credit bureaus. These use separate calculations for getting the scores from variable data they collect.
If you take a good look at different credit scoring models. you will see that most of them do a good job of giving you an idea of how well your credit score is right now. So if you are reading on and on about FICO scores vs credit scores, just know that both can help you determine which factors on your financial report needs improvement. We suggest you keep a regular check on your score in order to build credit history and solve potential issues. As Richardson, a financial analyst says “I think the best way to use these credit monitoring apps is to monitor your score[s] and look at where you fall into the range.”