Credit Score vs. FICO Score
The difference between Credit Score vs. FICO Score is minimal, moreover, FICO and other companies also produce their own ratings. One way to define a credit rating is as an abstract model for computing an evaluation of a debtor’s credit record.
To evaluate an applicant’s creditworthiness, many monetary institutions utilize a FICO Score, one of FICO’s proprietary credit scoring models. But other monetary institutions prefer to develop their own credit rating systems or to implement those of rival institutions.
What Is a Credit Score?
Creditors can quickly assess your monetary responsibility based on your credit rating. A higher credit rating is indicative of your responsible handling of debt and your ability to borrow money. But if your credit rating is low, it could mean that you have trouble keeping up with your bills.
So, from where do credit ratings originate? Companies such as Equifax, Experian, and TransUnion compile the data utilized to create these ratings from the info contained in your credit reports. Your credit report contains data about your monetary record, such as:
- Your identity (i.e., your name, aliases, date of birth, Social Security number, etc.)
- Accounts with existing credit (such as loans, lines of credit, or credit cards)
- Documents available to the public such as court orders, liens, or bankruptcies
- Credit report requestors’ background checks
Financial info is kept in credit reports by credit bureaus. The three most prominent credit reporting agencies are Equifax, Experian, and TransUnion. Credit reports are compiled by these businesses using data provided by creditors and data found in the public record.
What Is a FICO Score?
Fair Isaac Corporation is responsible for determining one’s FICO credit rating. Consumers’ usage of these ratings dates back to the late 1980s when the demand for a universally accepted method of assessing creditworthiness became apparent.
The best possible FICO rating is 850, and the range for these three-digit values is 300 to 850. There are three different FICO ratings that can be asserted from the data found in a debtor’s credit report. They are based on five distinct components:
- Record of past payments. Thirty-five percent of your FICO rating is based on how reliably you make payments. Making all of your payments on time helps your rating, whereas paying late or missing payments might lower it.
- Utilization of credit. The term “credit utilization” describes how much of a person’s available credit is actually being used. Thirty percent of your FICO rating is based on this.
- Loan maturity. The average age of a person’s credit accounts is a useful indicator of how long they have been utilizing credit. If someone has established credit over a long period of time, that’s a positive sign. About fifteen percent of your FICO credit rating is based on this.
- Combination of available credit. The FICO rating also takes into account the mix of credit a debtor has (i.e., installment loans versus revolving credit). FICO credit ratings are weighted ten percent on the basis of the mix of credit used.
- Applications for credit. Ten percent of your FICO credit rating is based on the number of credit inquiries. When a hard inquiry is made on your credit report, it shows up as a new inquiry.
Is There a Difference Between a Credit Score And a FICO Rating?
Your FICO Score is a credit rating. But if you see a credit rating that is different from your FICO rating, it could be because a different scoring model was utilized to arrive at that number.
Keep in mind that while FICO ratings are utilized by the majority of creditors, other creditors and credit rating providers may use their own proprietary techniques. Some of those are discussed in more detail below.
Are There Any Credit Scores Other Than FICO?
In 2006, Equifax, Experian, and TransUnion formed VantageScore Solutions as a joint venture to provide debtors with credit ratings based on data from all three bureaus. The most recent version of VantageScore (version 4.0) employs a scoring scale from 300 to 850.
Even though VantageScore credit ratings aren’t as commonly utilized as FICO ratings for making credit decisions, they can nevertheless provide useful info.
It’s important to keep in mind that the VantageScore model uses many of the same characteristics as the FICO model does, but it may give some of these factors more or less weight depending on the model used.
Additionally, in order for FICO to create a rating for you, you must have at least one account open for at least six months and at least one account that has recently been reported to a credit bureau.
Nevertheless, since VantageScore just requires one month of data and one account reported within the past 24 months, it may be able to provide credit ratings to a wider range of people.
In excess of 2,600 monetary organizations reportedly employ VantageScore credit ratings. Here are the criteria on which the ratings are based:
- History of payments: highly significant
- Credit record and age requirements: highly significant
- Usage percentage of available credit: highly significant
- Debt and total balances: moderately significant
- Credit record and recent inquiries: less significant
- Available credit: less significant
Comparable to the things that FICO looks at, right?
The scoring intervals for the latest version of VantageScore (credit scoring model) are shown below.
- Excellent: 750 to 850
- Good: 700 to 749
- Fair: 640 to 699
- Needs work: 300 to 639
Credit Bureau Proprietary Scoring Models
Each of the three major national debtor credit agencies provides its own credit rating in addition to FICO and VantageScore. For this reason, these ratings are sometimes referred to as “educational credit ratings,” as they are rarely utilized by creditors for making credit decisions.
There are a variety of credit scoring models available, with ranges as wide as 280–850 for Experian’s PLUS Score and 305–830 for Equifax’s Equifax Credit Score. Both of these ratings require payment before you can view them.
Why Is a Credit Score Necessary?
Your credit rating is one factor a creditor considers when deciding whether or not to provide you with financing for a car or home. Creditors can use credit ratings to make quick, informed judgments based on reliable, standardized data, lowering the risk of loan default due to untrustworthy debtors.
Those with excellent credit are more likely to be approved for loans and offered competitive interest rates. If a debtor has a low credit rating, they may not be approved for a loan or may be offered a loan with a very high-interest rate.
Your FICO credit score, along with those of other credit scoring systems, serve as a forecasting tool for creditors to evaluate your propensity and likelihood to satisfy financial obligations. No matter how your credit score is calculated, it’s important to think about strategies to improve it.
Settling your bills on time, maintaining your credit card balances low, maintaining existing accounts active, using a variety of credit, and reducing the frequency with which you apply for new loans or lines of credit are all simple ways to boost your FICO rating.
One’s credit score should be as good as one can get to ensure the lowest possible interest rates on loans.