You know your credit score is important. A healthy score can open doors, helping you borrow, buy, and do many things — all while spending less on premiums. A poor credit score can have the opposite effect, making it difficult to wrangle the finances you may need to power your dreams.
But not all credit scores are created equal. There are two major systems used to determine creditworthiness — VantageScore and FICO. We’ll show you how they calculate your score and why it matters.
How are FICO and VantageScore scores calculated?
Have you ever wondered how your scores are calculated?
FICO and VantageScore offer several scoring models. Both firms use credit data to produce three-digit scores, generally ranging from 350 to 800, that predict how likely a consumer is to repay debts on time.
The higher the number, the lower the risk for the lender. That’s why student loan providers and credit-card issuers look carefully at credit ratings. The scores are also a major factor in mortgage and car loans, with higher-scoring consumers more likely to lock in lower interest rates.
Have you ever noticed that your VantageScore and FICO scores don’t match?
That’s because the scoring models give more weight to different data points, calculating risk in slightly different ways. Let’s take a closer look at the variations and why they might matter to you.
FICO score calculations
FICO scores are generated by the Fair Isaac Corporation, the tech firm that pioneered the first industry-wide credit-scoring system more than thirty years ago. According to the firm, its system is still the most widely used today, with 90 percent of top lenders using the scores to make more informed lending decisions.
FICO scores incorporate data from five categories, with each item weighted differently:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
In 2006, the three credit reporting bureaus — Equifax, Experian, and TransUnion — joined forces to launch VantageScore Solutions, a new system to determine creditworthiness.
- Total credit usage, balance, and available credit (Extremely influential)
- Credit mix and experience (Highly influential)
- Payment history (Moderately influential)
- Age of credit history (Less influential)
- New accounts (Less influential)
Though the systems use similar criteria, FICO and VantageScore use different proprietary methods to analyze the data, resulting in different scores.
It’s important to note that neither FICO nor VantageScore consider certain personal details when calculating scores. This complies with the Equal Credit Opportunity Act, which prohibits creditors from discriminating against applicants on the basis of race, color, religion, national origin, sex, marital status, or age.
What are some of the key differences between VantageScore and FICO scores?
While the specific algorithms FICO and VantageScore use are proprietary, there are several known differences between the two scoring models. Here are a few that might impact you:
Credit history length requirements
VantageScore scores allow you to have a shorter credit history. To qualify for a FICO score, a consumer needs a credit history of at least six months, while VantageScore can provide a score for someone with just one month of credit history. As a result, VantageScore provides scores to more than 30 million consumers that would otherwise be unscoreable — and therefore invisible to most lenders.
Thin and non-existent credit profiles are common among those who have yet to use traditional credit. The same is true for people who have used traditional credit in the past but have gone more than two years without using it.
Tax liens, medical collections, and penalizations
VantageScore 4.0 may give less weight to medical-collections accounts and public records, thanks to the National Consumer Assistance Plan, a tri-bureau initiative launched in 2015 to make reports more accurate and easier for consumers to correct. Under the plan, medical debts aren’t reported until after a 180-day waiting period, and credit bureaus no longer report on medical debt that’s been paid off.
What’s more, public records — think long-overdue traffic or parking tickets and tax liens — no longer appear on credit reports, and therefore don’t carry as much penalty in the VantageScore 4.0 model. The same public record removals have shown little impact on FICO scores.
FICO might argue that the public record removals have little impact on any scores, not just FICO scores. It's hard to tell, since we don't know the exact formulas FICO and Vantage use to calculate scores, and there's no straightforward apples-to-apples way to compare the models.
FICO and VantageScore look at credit inquiries differently. Hard inquiries can ding your credit, but smart consumers often shop around to find the best rates. Both FICO and VantageScore take steps to de-duplicate multiple inquiries for the same purpose, but the two firms do this in different ways.
The most recent FICO scoring models count multiple inquiries of the same type within a 45-day range as a single inquiry. By comparison, VantageScore sees multiple inquiries of all types within a 14-day window as one inquiry. This means that multiple inquiries spanning more than a 14-day period — even if they’re all related to the same thing, such as shopping for a mortgage — may have a more negative impact on your VantageScore score.
Only FICO generates industry-specific scores. Along with the base scores that predict a consumer’s ability to repay debts, FICO also produces industry-specific scores for auto lending, credit card decisioning, and mortgage lending. These versions range from 250 to 900, rather than 350 to 800. VantageScore, on the other hand, only provides base scores.
How can I keep my credit scores as healthy as possible?
The VantageScore and FICO scoring models may be slightly different, but the following smart practices can help keep your credit scores healthy across both systems:
- Pay your bills on time. This is the single most important thing you can do to keep your credit scores healthy.
- Keep balances low. Aim to use less than 30 percent of your available credit at any given time, and less than 10 percent is even better.
- Limit new accounts. Only apply for new lines of credit when you really need them, and keep unused cards open if they don’t have annual fees.
- Limit rate shopping to a focused period of time. Aim to consolidate inquiries within VantageScore’s 14-day range or FICO’s 45-day window.
- Check your credit scores regularly. There are many free credit monitoring services, though many have strings attached. If you’re one of our members, simply log in to the portal to activate credit monitoring. We’ll ping you if something suspicious surfaces on your credit report. Regardless of how you check your scores, don’t hesitate to file a claim if you spot an error on your report.
Did you know that if you’re an Allstate Identity Protection member, there’s a lot you can do to manage your credit scores from within the portal? Under the ‘Credit Monitoring’ tab, tap to refresh your VantageScore, or view your annual tri-bureau and TransUnion credit reports.
You can also opt to lock your TransUnion report for an added layer of protection. Locking your credit blocks others from viewing your account, which can help prevent a criminal from opening a line of credit in your name.
If you’re a member and you find an error on your report, you can start a dispute without ever leaving the portal. Just scroll to the bottom of the report and tap “Start a Dispute,” then follow the prompts to work through the process.
If you’d rather walk through the dispute with one of our Identity Specialists, the team is always happy to assist. Either way, we’re proud to help you keep your credit and identity as safe as possible.