- Easy access to credit scores can cause confusion because each score may come from a different source.
- Three major credit bureaus and three different credit scoring companies mean everyone with a social security number likely has multiple credit scores.
- To understand where your credit score comes from look for the credit scoring company, the scoring model used, and the credit bureau providing the information. For example, your credit score might be a FICO 8 from Equifax.
Credit scoring companies and lenders have recently increased consumer access to credit scores creating both interest and confusion. Today you can get a free credit score from most banks and credit card companies, along with third-party vendors like Credit Karma. The problem is that your credit score is not the same across companies, creating misperceptions among consumers.
The reason is that different companies offer multiple scores and use different criteria to establish your credit score. Here is a brief peek at the differences:
The Different Credit Score Companies
FICO (Fair Isaac Corporation) is the largest and oldest of the three credit scoring companies. The company issued the first credit scores in 1989, and 90% of lenders currently rely on FICO to make credit application decisions.
The VantageScore scoring model arrived in 2006 as a joint venture between the three major credit bureaus, Equifax, Experian, and TransUnion.
The Beacon Score is the brand name for certain FICO scores driven by data from the company, Equifax credit reports. Lenders in Canada widely use the Beacon score.
Score Range
All companies currently use the same range between 300 and 850. FICO also gives specific industries access to credit scores that range from 250 to 900. Most lenders look for credit scores above 700 for the best rates and terms. A credit score below 580 is typically considered poor or subprime.
Algorithm Used
Each company uses a proprietary algorithm to calculate the three-digit score. Each company also has different scoring models, which results in numerous credit scores even within the same company.
The Principal Components of Your Credit Score
FICO and Vantage use slightly different factors to establish your score
Components Determining Your FICO Score
- History of Payments 35%
- Credit Utilization or amounts owed 30%
- Length of credit history 15%
- Types of credit used 10%
- Recent inquiries and new credit 10%
Components Determining Your VantageScore 4.0
- History of Payments 41%
- Length of credit and types of credit used 20%
- Credit utilization 20%
- Recent credit applications 11%
- Account balances 6%
- Available credit 2%
The algorithms also include measures such as how recent the late payment occurred, how many late payments are on the record, and the number of missed payments in the past seven years. The older the late payment becomes, the less impact it has on the credit score.
FICO treats all late payments the same, where Vantage places more weight on secured accounts like a mortgage than unsecured debt like a credit card.
When Does the Company Generate a Credit Score?
To generate a credit score, FICO requires at least one active account in the last six months plus six months of reporting. Vantage, on the other hand, will generate a credit score within one month of a new report and any activity within the past two years.
Credit Inquiries
Consumers tend to compare rates in order to secure the best rate and terms. FICO uses a 45-day span of time, reporting all like inquiries as a single request for home, auto loan, and student loans. Vantage only offers a 14-day window to combine inquiries, but include all forms of credit, including credit cards.
A new ruling by the CFPB (Consumer Financial Protection Bureau) now requires credit bureaus to record all mortgage inquiries within a 45-day window as a single inquiry on your credit file.
Final Thoughts
Vantage gives those with a thin credit file a credit score sooner than FICO. However, the Vantage score weighs current debt loads more heavily than FICO, which can hurt consumers with a lot of credit card debt. Ultimately, consumers have no control over which credit score, a lender or company will use when determining an application acceptance or rejection.
For more consistency, choose one resource and follow your score through that company to gauge your credit quality.
