As a real estate investor, understanding and monitoring your credit score is crucial. After all, if you have a low credit score, you may have difficulty qualifying for an investment loan or securing a loan with favorable terms.
However, things can get tricky once you realize that there are two types of credit scores that lenders seem to be using: the VantageScore and the Fair Isaac Corporation (FICO) score.
The following is a guide on the similarities and differences between VantageScore and FICO score.
What Is The VantageScore Model?
VantageScore uses a scoring model similar to the FICO credit score. The VantageScore model was developed by the three major consumer reporting agencies – Experian, Equifax, and TransUnion. Since it was released in 2006, many lenders have adopted it as an alternative to the traditional FICO Score.
Since then, four different iterations have been released, the latest being VantageScore 4.0.
What Is A FICO Score?
The Fair Isaac Corporation developed the FICO score model. It was the first scoring model available and has been widely used for over 30 years. There are many variations of the FICO scoring model, including the base model, which is currently in its ninth iteration, and its industry-specific model, of which there are numerous.
The industry-specific models have a different scale and were developed for specific industries, such as the auto or credit card industries.
How VantageScore And FICO Score Are Similar
There are a lot of similarities between the VantageScore credit score and the FICO score, which is arguably a good thing.
If they were too different from one another, it could lead to drastically different outcomes for borrowers based on what model their lender is using.
With that in mind, the following are the similarities between the VantageScore credit score and the FICO score:
Credit Score Range
The FICO model uses a scale of 300 to 850 and is divided into five rating tiers based on the score. The VantageScore follows the same scale and tier system, although initially, it used a scale of 501 to 900 (based on scores of that initial scale, a rating of A to F was given).
Scoring Model Objective
The primary objective of both the VantageScore and FICO score models is to predict how likely a borrower is to default on a loan, defined as being 90 days late on a payment within a 24-month period. This information helps lenders determine the risk of lending to that borrower.
After all, lenders will be wary of lending money to borrowers who are more likely to miss payments or default on their loan.
Credit Score Factors
The VantageScore model is similar to the FICO model in that it also uses various factors to calculate your credit score. These include payment history, balances, dates of credit activity, available credit limits, and types of credit in use.
ECOA Compliance
Both VantageScore and FICO are compliant with the Equal Credit Opportunity Act (ECOA). Since 1970, this act has protected borrowers against lending discrimination.
To ensure compliance, lenders are prohibited from using age, gender, race, religion, marital status, national origin/ancestry, sexual orientation, or other factors not directly related to your ability to repay a loan to determine your credit score.
Main Differences Between VantageScore And FICO Score
Now that you know the similarities between the VantageScore and FICO credit scores, it’s time to explore some of their differences.
The following are some of the main differences between these two scoring models:
Required Scoring Criteria
One of the primary differences between VantageScore and FICO is how much information is required before a score can be generated. To qualify for a FICO score, you need at least one account that has been open for six months or longer and one account that has been reported to the credit bureau within the last six months.
The VantageScore model has fewer requirements than the FICO model. You need at least one account on your credit history, but it doesn’t matter how old it is. As a result, you can get a VantageScore within just a month or two of opening your first account.
Points Value System
Despite using the same factors, the influence of these on the overall credit score differs between FICO and VantageScore.
For example, late payments are judged differently. FICO evaluates late payments the same way, no matter what type of debt the payment was for. Conversely, VantageScore considers late payments differently. For example, a late mortgage payment will hurt your VantageScore credit score more than a late credit card payment would.
There are slight variations in the points value system between each model. The credit scoring method in each model is dependent on the number of points attributed to each factor. For instance, you might earn up to 150 points from FICO for having a delinquency-free credit report, while you may earn 155 points from VantageScore for the same thing.
Credit Score System
Although both VantageScore and FICO use a scoring system of 300 to 850 divided into five tier ratings, the way those tiers are divided is different.
VantageScore uses the following five tiers:
- Excellent: 781 – 850
- Good: 661 – 780
- Fair: 601 – 660
- Poor: 500 – 600
- Very Poor: 300 – 499
The tiers that FICO uses are as follows:
- Exceptional: 800 – 850
- Very Good: 740 – 799
- Good: 670 – 739
- Fair: 580 – 669
- Poor: 300 – 579
What You Need To Know About The Wide Range of Credit Scores
Not only does FICO offer a wide range of industry-specific credit scores, but there are numerous other credit score models out there. FICO and VantageScore just happen to be the biggest ones.
The following are a few of the other credit score models being used in the U.S.:
- CE Credit Score: Developed by CE Analytics, the CE Credit Score uses a scale of 330 to 830 that Quicken Loans uses for its credit determinations.
- Credit Xpert Credit Score: The Credit Xpert Credit Score was developed for businesses to detect false information and approve new account candidates.
- Experian National Equivalency Score: The National Equivalency Score uses a scale of 0 to 1000. This model is different to the other models as a higher score indicates a poorer credit rating.
In this model, an increase of 100 points indicates a 10% increase in risk that a borrower will become delinquent in the next 24 months. As such, someone with a score of 900 would have a 90% risk of becoming delinquent over the next two years. - Insurance Score: Insurance scores are credit scores that insurance companies use to determine your risk as a potential customer and to determine insurance premiums. The Insurance Score uses a scale of 200 to 997.
- TransRisk: TransUnion developed TransRisk to determine the risk on new accounts. TransRisk scores tend to be much lower than FICO scores, and many lenders don’t use them due to their specialized nature.
How To Get A Good Credit Score And Secure A Loan
Although FICO and VantageScore have slightly different models and calculate various credit factors differently, they focus on the same factors. As such, if you work on improving the areas that they focus on, you’ll improve your score for both FICO and VantageScore, allowing you to secure better loan terms.
With that in mind, the following are a few tips on how you can improve your score:
- Pay your bills on time and in full.
- Pay down the balance on your credit cards to reduce your credit utilization.
- Pay off any existing collections accounts.
- Request a balance increase on credit cards to reduce credit utilization.
- Request that your rent and utility bills be reported to the credit bureaus.
- Check your credit reports for errors and request that they be removed.
- Don’t close your credit cards after you pay them off. Keep them open to maintain a low utilization rate.
Be sure to read more about how you can improve your credit score to make securing real estate investment loans easier.
Get Quick Approval When You Apply For A Real Estate Loan
Don’t get confused about the differences between the FICO and VantageScore credit score models. As a real estate investor, you’ll want a high score for both to ensure that you can qualify for real estate loans with favorable terms.
Be sure to ask about our real estate loans at Pine Financial Group. We offer quick approval times and competitive loan terms specifically for real estate investors.