FICO Score versus Vantage Score

Your credit score it is one of the most critical factors in your financial life. It determines if you will be approved for a loan or line of credit. A credit score is a number developed and calculated by the Fair Isaac Corporation (FICO) that lenders use to rate potential customers in determining the likelihood that a customer will pay their bills on time. Your credit score is used for employment, approval for loans and credit, insurance rates, opening bank accounts and affects critical aspects of your life.

The FICO credit score is determined by using 5 main criteria as defined by MyFico.com: your payment history which accounts for 35% of your credit score, the total amounts owed which accounts for 30% of your credit score, the length of your credit history which accounts for 15% of your credit score, new credit which accounts for 10% of your credit score, and the types of credit used which accounts for 10% of your credit score.

Payment history shows the history of how you paid your bills either on time or late. Amounts owed show the total amount of debt you owe. If your balance is near the credit limit this may lower your credit score. The length of history indicates how long you have had credit. If your credit history is 2 years or less this could lower your credit score. New credit indicates how many times you have applied for new credit.

If you open too many new accounts in a short period of time this may lower your credit score. The types of credit used indicate the types of accounts you have such as revolving or installment accounts. Revolving accounts are usually credit cards and installment accounts are usually mortgage loans, auto loans, personal loans, etc.

The higher the credit score the lower the interest rate you will receive for a loan or line of credit. Having a good credit score can save you thousands of dollars in interest over the life of the loan.

Another credit score that is used is called the Vantage Score which ranges from 501 to 990 and correspond to letter grades with “A” credit ranging from 901–990 and “F” credit ranging from 501–600. The Vantage score is currently available to customers for a nominal fee and can be ordered by calling the three major credit reporting agencies, Experian, TransUnion and Equifax. The scale for the Vantage credit score is: 901-990 A score, 801-900 B score, 701-800 C score, 601-699 D score and 501-599 F score.

Benefits of FICO Scores
1. Starts credit history as soon as a person starts using credit
2. Over half your score consists of payment history and total amount owed
3. Used for approval of loans and credit cards
4. Helps those with established credit history
5. Helps those with at least 2 years of credit history
6. Helps those aged 30-65

Disadvantages of FICO Scores
1. Doesn’t offer credit grades to coincide with credit scores
2. Scores range from 300-850 – a span of 550 points
3. Credit scores may not be the same with each credit bureau
4. Doesn’t consider rental payment history

Benefits of using the Vantage Score
1. Provides consumers with little to no credit or bad credit with more accurate scores
2. Starts credit history as soon as a person starts using credit
3. Uses rental information
4. Helps young adults aged 18-25 and college students
5. Helps those who are recently divorced or widowed
6. Helps those with bad credit or who previously filed bankruptcy

Disadvantages of the Vantage Score
1. You score could decrease, if your FICO score was 720 your score may remain in the 700s using a Vantage score which would give a C grade.
2. Scores range from 501-990 – a span of 489 points.
3. Over half your score consists of payment history and recent credit so you are penalized heavily for having any new credit. The length of credit history weighs less. Available credit only consists of 1% of the credit grade so you can have a credit card maxed out or with high balances and still have a good credit grade.
4. Credit scores may not be the same with each credit bureau.

However, it is up to the lender or company to decide which score they want to use to consider approving you for a loan or credit card.

How to Get an A Plus Credit Score

Many Americans have bad credit but more people have received bad credit ratings due to the recession. Bad credit can prevent you from getting hired for a job, or getting approved for a loan or credit card. You may be provided explanations of why you have bad credit but still may not understand what it means. One of the major factors in understanding your credit report and your credit score are the reason codes listed on your report. Some reason codes that may appear on your credit report are:

• Length of credit history – how long you have had credit, either a loan or credit card.
• Too many inquiries – you have had more than 1 or 2 companies pull your credit report within the last 24 months which lowers your credit score. You should have no more than 1 inquiry every 12 months if needed.
• Too many new accounts – you are considered a risk because you opened more than 1-2 new accounts within the last 24 months which lowers your credit score.
• Account balances too high – your credit cards are maxed out or the balances on your credit cards are above 50% of the credit card limit.
• Number of revolving and installment accounts – you need to have a mix of revolving (credit cards, line of credit) and installment accounts (loans).
• Recent delinquency – you had one or more accounts that were paid late in the past 0-3 years.

Your credit score consists of 5 factors which determines if you have good or bad credit: your payment history (35%), the total amount of debt owed (30%), length of your credit history (15%), new credit (10%), and the types of credit used (10%). A credit score ranges from 300-850 with 850 being the highest score. Your credit score is viewed as an indication of your trustworthiness and your ability to pay your bills on time.

Common myths about your credit score: paying a late account automatically increases your credit score, ignoring older accounts means you no longer have to pay them, if an account that is 7 years old is removed from your credit report you don’t have to pay it, medical bills don’t have to be paid, only loans and credit cards are reported on your credit report, and if you pull your credit report yourself this lowers your credit score. Here are 8 ways to get an “A” plus credit score.

1. Order your credit report and credit score from the 3 major credit bureaus, Experian, Equifax and TransUnion online at annualcreditreport.com or by phone at 877-322-8228. If you find any errors on your credit report dispute the information online for a quicker turnaround time. Mail any supporting documentation.
2. Pay off collection accounts, judgments, and tax liens as soon as possible. Each account paid can increase your credit score by 20-25 points.
3. Prior to paying a delinquent debt ask the company to remove it from your credit report. It is easier to negotiate prior to sending in your payment.
4. If you have been 30 days or more late on a credit card bill get current. Getting current on your credit card bills can increase your credit score by 20-30 points.
5. If your credit card balance is 50% or more over the credit card limit send your payment so that it arrives 5 to 7 days before the due date. This will ensure the most recent balance is updated to the credit bureaus each month.
6. Negotiate. Ask creditors to settle an account for 50%-70% of the total amount owed. In exchange for payment ask the creditor to remove the account from your credit report and request a confirmation letter stating the account will be removed prior to making a payment. If the creditor refuses ask the creditor to report the account as “paid” or “paid in full” on your credit report.
7. Pay balances in full at the end of each month.
8. Call your credit card company and tell them you would like to increase your credit score and ask them for some tips.