Which Credit Score Do Lenders Use?
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FICO is overwhelmingly used by most consumer credit lenders. They’re not the only ones in the business, but they are the most widespread. According to myFICO.com, FICO scores are used to determine borrower creditworthiness with 90% of top lenders.
Even when choosing between FICO or VantageScore, there are multiple versions of each one. Lenders choose scoring versions that work for their needs.
VantageScore vs FICO
Most people use the terms credit score and FICO Score the same way, but there’s more than one type of credit score. Both are valid and used by multiple types of lenders to determine your likelihood of repaying debts and credit risk.
In fact, different versions of FICO and VantageScore are used in specific industries. For example, an auto lender might use a FICO Auto Score, and a landlord or agency might run your credit through VantageScore 3.0. You’re more likely to use your FICO credit score though.
FICO is the biggest source of credit scoring for most lenders, but it’s not the only one on the market. VantageScore was first introduced in 2006 compared to the 1989 release of the FICO Score by the Fair Isaac Corporation.
If FICO is so heavily used, then why do we even have VantageScore?
VantageScore is a joint effort between the three major credit agencies. Even though they’re not the most commonly used, VantageScore made up 12.3 billion of the credit scores used between July 2018 and June 2019.
It was built for people whose limited credit history prevents them from getting a credit score. People like students and immigrants.
In comparison to FICO, it’s much quicker to build your credit under VantageScore. On average, FICO takes six months to assign a credit score to an individual with a new credit account. The same consumer can get a credit score within a month or two on VantageScore.
What are the other major differences between the two? I’m glad you asked.
- Late payments are always going to do damage. But a late mortgage payment on VantageScore is more influential to your score than other late payments.
- Rate Shopping? Both credit scoring systems give you time to check your options, but the timeframes differ. VantageScore allows 14 days for rate shopping while FICO allows 45 days.
- VantageScore ignores paid collections accounts. Older versions of FICO still recognize them, but recent versions like FICO 9 and FICO 10 ignore paid collections too.
- People who haven’t had a FICO Score yet due to limited credit history can likely get a credit score through VantageScore.
VantageScore uses the same 300-850 credit score range. However, each factor is weighted differently compared to FICO. Beginner credit courses teach that your FICO Score is made up of payment history, credit mix, age of accounts, and utilization.
VantageScore handles this differently. Let’s compare the two.
FICO Score Key Score Factors
Key Score Factors | FICO |
---|---|
Payment History | 35% |
Credit Utilization | 30% |
Age of Accounts | 15% |
Credit Mix | 10% |
New Credit | 10% |
VantageScore 3.0 Key Score Factors
Key Score Factors | VantageScore |
Payment History | 40% |
Credit Age and Mix | 21% |
Credit Utilization | 20% |
Balances/ Debt | 11% |
New Credit/ Inquiries | 5% |
Available Credit | 3% |
Credit Scores that Lenders Use For Mortgages
With a 17 year lead on being the go-to for credit scores, it makes sense that FICO is used by most lenders. They’re also the only ones approved for use by government-backed entities like Freddie Mac and Fannie Mae – FHA loans included.
If your goal is to get a mortgage, you’ll need to focus on your FICO Score.
The most commonly used FICO scoring model is the FICO Score 8. This works great for most industries, but mortgage lenders prefer using much older versions. Mortgage lenders typically use FICO Score 2, 4, and 5 to make their lending decisions.
These scoring versions place less weight on a borrower’s credit utilization ratio than other credit scoring models.
When you apply for a mortgage, the mortgage lenders pull your FICO Score from all three credit bureaus. If you’re applying with a spouse/partner their credit gets pulled as well.
If you have different scores across the credit bureaus, the lenders use the score in the middle to approve you. The same basic rule applies here. The better your credit score is, the better mortgage loan terms and interest rates that are available to you.
Credit Scores that Lenders Use For Auto Loans
Are you searching for a new car? Lenders are likely to use the industry-specific FICO Auto Score when reviewing your credit history.
A variety of versions are used from each credit reporting agency. Experian uses FICO Auto Score 8, 9 and 2. Equifax uses FICO Auto Score 9, 8, and 5. TransUnion uses FICO Auto Score 9, 8 and 4. All of these have the possibility of coming up with different credit scores.
Each lender decides what their process is in that case. Some might choose the lowest score of three. Others still might choose the median score. As long as you meet their minimum credit score requirements, you’ll qualify for a car loan. These also change based on the lender.
Credit Scores that Lenders Use For Credit Cards
Just like with auto loans, credit card issuers use industry-specific credit scoring when assessing credit reports. For FICO scoring, that typically means using the FICO Bankcard Score. Credit card issuers aren’t just using FICO though.
According to a 2019 study, credit card issuers, banks, and credit unions made up 52% of total usage of VantageScore credit scores. Keep in mind lenders can use both scores for different reasons.
Your VantageScore might be used to pre-qualify you for special credit card offers while the FICO Bankcard Score could be used for the actual credit inquiry. Either way, a good credit score will still earn you the best credit cards, the highest credit limits, and the lower interest rates.
Another version that could potentially be used for this purpose is the FICO Score 8. This model is notoriously critical of revolving credit accounts with high balances. If that applies to you, it’s wise to pay down some credit card debts before applying for a new one.
How To Improve Your Credit Score
Whether you’re improving your FICO Score for a mortgage or looking for an auto loan pre-approval with your VantageScore, there are simple steps you can take to improve both.
The differences in how the credit scores are calculated don’t change the steps you take to go from bad credit to good credit. Once you adopt the behaviors like keeping your payment history solid and increasing your available credit, fixing your score comes naturally.
Get CreditStrong
CreditStrong helps you build credit with their top-rated credit builder loan. A credit builder loan builds credit by focusing on two important factors of your credit score – your payment history and credit mix.
The most commonly suggested way to start your credit journey is to build credit with credit cards. It’s effective until you start applying for larger forms of credit. The challenges of revolving credit are different from managing installment loans. That’s why we offer the credit builder loan.
When you apply for a new car or even a mortgage, lenders look for a good credit mix to demonstrate responsibility with multiple loan types. That’s where CreditStrong comes in.
It’s simple. Apply for the credit builder loan that fits your budget – no credit check required. Once you’re approved, you can start building credit and saving money in an FDIC-backed savings account.
Your monthly loan payments are reported to all three credit reporting agencies and over time, your credit score increases!
When you’ve repaid the loan, you have full access to the funds you’ve saved. And your on-time monthly payments mean you walk away with a higher credit score.
Increase Your Available Credit
The second largest factor in your FICO Score is credit utilization. This makes it very important to pay down revolving debt and increase your available credit when improving your credit score. There are a few ways to tackle this:
- Make a plan to pay down debt with any extra money in your budget.
- Refinance high-interest rate debt with a debt consolidation loan.
- Request a credit limit increase from your credit card issuer.
Bringing your credit utilization rate down to a reasonable level shows credit reporting agencies responsible credit usage. This gets reflected in your credit report and scores. It also takes away some of the stress that comes with excess debt.
Dispute Errors On Your Credit Report
Hopefully you’re reviewing your credit report regularly. If not, then it’s time to start.
You could be missing errors driving down your credit score and preventing you from getting the credit you need. Some people hire credit repair organizations to do this part, but you’re able to do it yourself.
Getting your credit score straight from Experian or Credit Karma display your credit report along with any errors impacting your score. Luckily, the dispute process to get rid of them is easy.
The consumer financial protection bureau (CFPB) has a full guide on how to process a dispute through each credit bureau along with what you should look for on your credit report.
While it can take up to 30 days to hear back about the investigation into your dispute, it’s time well-spent. Especially if the issue is removed from your credit report.
Stay Away From Hard Credit Inquiries
After doing all that work to improve your credit score has begun, it’s important to maintain it. This looks like not applying for new credit accounts unless you need it. One or two hard inquiries for a student loan or mortgage you needed are understandable.
Five or six hard inquiries for store credit cards, a new smartphone, and a new car all at once are not. For potential lenders, this looks like upcoming financial issues and it lowers your chances of approval.
Hard inquiries stay on your credit for two years. The impact they have on your credit score is small, at up to five points, but it can still be a red flag to lenders.
Overall the FICO Score is more widely used by lenders. Hands down. Especially mortgage lenders. VantageScore is used in some cases, but it’s often playing a supporting role. The two credit scoring systems are different in a few ways including the way they’re calculated.
No matter which scoring model you use, you’ll still have to maintain the same behaviors to improve your credit score: on-time payments, low credit utilization, regularly reviewing your credit, and using credit responsibly.
CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.