If you're interested in your credit score, you may have come across two different types of scores: VantageScore 3.0 and FICO 8. These are two of the most common credit scoring models that use data from the three major credit bureaus (Equifax, Experian and TransUnion) to calculate your creditworthiness. But what are the differences between them and how do they affect your credit?
In this blog post, we'll explain the main features of VantageScore 3.0 and FICO 8, how they compare and contrast, and what you can do to improve your scores with either model.
## What is VantageScore 3.0?
VantageScore 3.0 is a credit scoring model developed by the three credit bureaus themselves. It was launched in 2013 as an update to the previous versions of VantageScore, which used a different numerical scale and criteria. VantageScore 3.0 uses the same 300 to 850 scale as FICO scores, making it easier for lenders and consumers to understand and compare.
VantageScore 3.0 considers six main factors when calculating your score:
- Payment history: This is the most important factor, as it shows how consistently you pay your bills on time. Any late payments, collections, bankruptcies or other negative items will lower your score.
- Age and type of credit: This factor looks at how long you've been using credit and what kinds of accounts you have (such as credit cards, loans, mortgages, etc.). Having a longer and more diverse credit history can boost your score.
- Percentage of credit limit used: This factor measures how much of your available credit you're using across all your accounts. It's also known as your credit utilization ratio. A lower ratio indicates that you're managing your debt well and not maxing out your cards.
- Total balances and debt: This factor takes into account how much you owe on all your accounts, both individually and collectively. It also considers the types of debt you have, such as revolving (credit cards) or installment (loans). Having too much debt can hurt your score, especially if it's high-interest or unsecured debt.
- Recent credit behavior and inquiries: This factor reflects how often you apply for new credit or make changes to your existing accounts. Every time you apply for a new account, a hard inquiry is recorded on your credit report, which can lower your score temporarily. Opening too many new accounts in a short period of time can also signal that you're a risky borrower.
- Available credit: This factor evaluates how much credit you have access to but are not using. Having more available credit can improve your score, as it shows that you have more financial flexibility and can handle more debt if needed.
VantageScore 3.0 has some unique features that differentiate it from other scoring models. For example:
- It does not factor in small-dollar collection accounts with an original balance of less than $100, while FICO 8 does. This means that minor debts like parking tickets or library fines won't affect your VantageScore 3.0 as much as they would affect your FICO 8 score.
- It may react more positively to credit building moves than FICO 8, according to one comparison chart from TransUnion. For instance, paying off a collection account or reducing your credit utilization ratio may result in a bigger increase in your VantageScore 3.0 than in your FICO 8 score.
- It can score more consumers who have limited or no credit history, as it only requires one month of activity on one account in the past two years to generate a score. FICO 8 requires at least six months of activity on one account in the past two years.
## What is FICO 8?
FICO 8 is a credit scoring model created by Fair Isaac Corporation (FICO), an independent company that specializes in analytics and decision making. It was introduced in 2009 as an update to the previous FICO models, which are still used by some lenders for specific purposes.
FICO 8 also uses the same 300 to 850 scale as VantageScore 3.0, but it weighs the information on your credit report differently. FICO 8 considers five main factors when calculating your score:
- Payment history: This is also the most important factor for FICO 8, as it shows how reliable you are at paying back what you owe. Any delinquencies, defaults or other negative marks will lower your score.
- Amounts owed: This factor looks at how much you owe on all your accounts, both in total and as a percentage of your credit limits. It's similar to the percentage of credit limit used and total balances and debt factors in VantageScore 3.0, but it also includes other aspects of your debt, such as how much you've paid down on installment loans.
- Length of credit history: This factor evaluates how long you've had credit accounts open and how long it's been since you used them. A longer and more active credit history can improve your score, as it shows that you have more experience and stability with credit.
- New credit: This factor reflects how often you apply for or open new credit accounts. It's similar to the recent credit behavior and inquiries factor in VantageScore 3.0, but it also considers the number of new accounts you have, not just the inquiries. Too many new accounts or inquiries can lower your score, as they indicate that you may be taking on more debt than you can handle.
- Credit mix: This factor examines the variety of credit accounts you have, such as credit cards, loans, mortgages, etc. Having a good mix of different types of credit can boost your score, as it shows that you can manage different kinds of debt responsibly.
FICO 8 also has some unique features that differentiate it from other scoring models. For example:
- It is more sensitive to high credit utilization ratios than previous FICO models, meaning that using a large portion of your available credit can lower your score more significantly. FICO recommends keeping your credit utilization ratio below 30% for each account and overall.
- It is less forgiving of isolated late payments than previous FICO models, meaning that a single 30-day delinquency can lower your score more substantially. However, it is also more lenient of occasional late payments if you have an otherwise good payment history.
- It ignores small-dollar collection accounts with an original balance of less than $100, while previous FICO models did not. This means that minor debts like parking tickets or library fines won't affect your FICO 8 score as much as they would affect older FICO scores.
## How do VantageScore 3.0 and FICO 8 compare?
As you can see, VantageScore 3.0 and FICO 8 have many similarities in how they calculate your credit score, but they also have some differences in how they weigh and treat certain information. These differences can result in slight variations in your scores depending on which model is used.
For example, if you have a short or thin credit history, you may have a higher VantageScore 3.0 than a FICO 8 score, as VantageScore 3.0 can score more consumers with limited credit data. On the other hand, if you have a high credit utilization ratio or a recent late payment, you may have a lower FICO 8 score than a VantageScore 3.0 score, as FICO 8 is more sensitive to these factors.
However, these variations are usually not significant enough to affect your overall credit standing or eligibility for credit products. Both VantageScore 3.0 and FICO 8 use the same score range and the same general criteria to evaluate your creditworthiness. Therefore, if you have a good VantageScore 3.0, you're likely to have a good FICO 8 score as well, and vice versa.
The table below shows how both models categorize different score ranges according to their level of risk.
Score Range VantageScore 3.0 Rating FICO 8 Rating
------------------- ------------------------------------- ---------------------
800-850 Excellent Exceptional
750-799 Excellent Very Good
700-749 Good Good
650-699 Fair Fair
600-649 Poor Poor
300-599 Very Poor Very Poor
As you can see, both models agree on the general meaning of each score range, although they use slightly different terms to describe them.
## How can I improve my VantageScore 3.0 and FICO 8 scores?
The good news is that improving your VantageScore 3.0 and FICO 8 scores doesn't require different strategies or actions. Since both models use similar criteria and data to calculate your scores, the same best practices apply to both of them.
Here are some tips to help you boost your scores with either model:
- Pay your bills on time every month. This is the most important factor for both models, so make sure you don't miss any payments or pay late. Set up automatic payments or reminders if necessary.
- Keep your credit utilization ratio low. This is another key factor for both models, so try to use less than 30% of your available credit.
By John Figard: Senior Blog Contributor NowICanOwn.