When you apply for a loan or credit card, you typically have to undergo a credit check. Credit checks allow lenders to have a full view of your lending history – it’s a great way for them to get a better idea of your chances of paying back their money on time. Lenders want to find borrowers who have a history of reliability and responsibility. But many borrowers don’t understand credit scores or how they work. Understanding these scores and how they impact your ability to borrow money is key in ensuring you have the best chance at receiving finance.
In this guide, we give our readers a brief overview of FICO and Vantage – these are the two primary credit scores produced for lenders when you apply for financing.
The FICO model has long been the accepted credit score in the lending industry. It wasn’t until just over ten years ago that the three major credit reporting bureaus joined together to create the Vantage score. While the scores are relatively similar, they do weight things in different ways. FICO also has specific algorithms for specific lenders – if you’re an auto lender, they’ll provide you with different analysis to a home lender. This allows for greater customization for lenders – they can receive an analysis snapshot about the potential risks they face depending on the loan they’re providing.
Fortunately, both scores are marked on the same credit scale. All scores on Vantage and FICO-based algorithms fall between 300-850. This has made it much easier to have a general understanding of the strength of your score! Vantage scores are growing more and more popular – they have continued to make headway because of the power of the three major reporting bureaus that use them. It is important that you consider both scores when you’re trying to assess your credit situation.
Advantages of FICO
FICO is the original credit score that lenders used to look at for borrowing decisions. It’s still an extremely popular metric – let’s take a look at the various advantages of FICO.
- Custom – FICO is a custom scoring platform. It provides different analysis depending on the type of borrowing that is occurring. When a lender tries to pull you FICO record, they will provide them with data analysis that is specific to the type of borrowing you’re applying for.
- Less Hard Inquiries – If you’re a borrower, a FICO score may be more advantageous to you because it doesn’t consider hard inquiries for credit card applications. This means that your FICO score might be much higher than your Vantage score if you’ve applied for a lot of credit cards in recent times.
Advantages of Vantage
Now we will take a look at the various benefits of Vantage scores.
- Natural Disaster Consideration – If you have items on your credit report that stem from a natural disaster, Vantage does not weight these as heavily. The Vantage score attempts to understand that people who are financially responsible still face economic hardship when extreme natural disasters occur.
- Straightforward – Vantage score also appears to be more straightforward for consumers. It provides a similar score for every type of lending. This makes it fairly predictable in terms of the way that it will be displayed to lenders.
- Mortgage More Important – Vantage takes mortgages more seriously than other forms of term loans. They believe that mortgage payments should be weighted heavier than other forms of finance. This means that if you have a late car payment, your vantage score won’t be as badly damaged.
FICO: King of the Industry
At the end of the day, FICO is still the king of the industry. This doesn’t mean that they will be forever, it simply means that they are currently the most reputable credit score in the nation. This is largely due to their access to home mortgages. Currently, it is the only credit bureau that is able to review credit for home-related borrowing for many federal lenders or agencies. This means that it is most likely the source of information for large lending decisions.
Check What Your Lender Uses
If you want to assess your eligibility for financing, it’s important to check which type of credit score your lender uses. You can typically ask your lender about which score they use to make a decision on your lending application. You can also ask them which credit reporting bureaus they contact. Sometimes they won’t tell you – this doesn’t mean that you can’t find out.
Head online to a credit reporting forum and search for which lenders use which score algorithms. You can typically find other borrowers or insiders who know what type of score your prospective lender uses. You should then head online and check your credit report before you apply.
Does Debt Consolidation Impact My Scores?
Debt consolidation will impact your scores in the short term. Both FICO and Vantage scores seems to reduce slightly after a debt consolidation loan is taken out. But the benefits in the long run will be massive. Not only will you have eliminated your credit card balances, but you’ll also find that you can begin to accumulate a good payment history. Learn more about how to consolidate credit cards into one payment.
If you’re worried about your credit score, debt consolidation loans and refinancing is typically the best long-term solution – especially if you feel that you’re in a hole that you can’t escape. Any short-term losses will be largely surpassed in the future.
After reading this guide, you should have a better understanding of FICO and Vantage scores – as well as the history associated with them. Remember how important it is to check all your credit scores before you apply for a loan. You should take both Vantage and FICO into consideration. You should also make attempts to find out which scores your lenders assess when making lending decisions – it can help you assess if you’re eligible for their financing.
If you have any more questions about debt consolidation or credit scores or how to pay off credit card debt faster, check out some of the other informative content on our site!
Financial Advisor, DCL
Claire is a noted financial writer and author of hundreds of articles about personal and business finance. Before getting her MBA, she graduated with a BS in Economics. Her coursework focused on the different ways that debt, debt structure, and debt restructuring affect micro and macro-economic issues.
Upon graduation, she took a job at an investment bank that worked with municipal and county governments to help them reorganize and structure their debt so they could continue to provide essential city services.
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