Your credit score has a significant impact on your ability to get approved for loans. From car loans and mortgages to personal loans and credit cards, all lenders will want to run a detailed credit check as part of the screening process.

There are two main types of credit scores: Vantage Scores and FICO scores. And more than likely, your score for each is slightly different. By having a better understanding of what these two different scores are calculated and why they matter, you can be better informed the next time you take a look at your credit report.

FICO Scores

The FICO model for credit scoring was first introduced in 1989; the purpose of this model was to help lenders make decisions more easily and objectively regarding loan applications. There are five main categories which are used to determine a FICO score:

  • payment history

  • amount of debt owed

  • length of credit history

  • new credit

  • credit mix

All of this information is used to calculate your FICO score, which will fall between the range of 300 on the low end and 850 on the high end.

It is also worth noting that in order to establish a FICO score, you will need to have at least one account that has been open for six months of more.

Vantage Scores

Vantage Scores also have a range of 300 to 850, though that’s about where the similarities between FICO and Vantage Scores end.

Vantage Scores were introduced much later than FICO scores—in 2006, to be exact. These scores were introduced by the three major credit reporting bureaus (TransUnion, Equifax, and Experian) in an effort to simplify credit scoring in general. There are six main categories that are used to determine a person’s FICO score:

  • payment history

  • age (and type) of credit

  • percentage of credit limit utilized

  • balances and debts

  • recent changes to credit behavior and new inquiries

  • available credit

With a Vantage Score, there is no minimum length of credit history required. With as little as one month of spending and credit history, you can have an established Vantage Score. This is beneficial to those who are just starting to establish their credit and are looking to take out a loan to improve their score.

Which is More Important?

These days, both FICO and Vantage Scores carry similar weight when it comes to taking out a loan or getting approved for any type of financing. More than likely, a lender who runs your credit history will take a look at both your FICO and Vantage Score to help them make a decision regarding your credit application.

The good news is that you can obtain free copies of both scores at least once a year by contacting each of the major reporting bureaus. This will entitle you to a copy of your credit report, which you should review carefully to look for any errors or other issues that need to be addressed. If you come across any errors on your credit report, it is imperative that you file a dispute with the reporting bureau as soon as possible.

How to Improve Your Scores

No matter what your FICO or Vantage Scores may look like, there are steps you can take to improve them. And while there is no “overnight” fix for a bad credit score, there are small steps you can take to gradually improve your credit score.

Because both FICO and Vantage Scores place a great deal of weight on your overall payment history, the most important thing you can do to boost your credit is to make all of your payments on time. If you anticipate that you’re going to have trouble paying a bill, contact your lender immediately to see if you can work out a payment plan.

In addition to making your payments on time, it’s also important to keep your credit utilization level below 20%. This means that if you have a total line of credit of $10,000, you should never be using more than $2,000 at a time.

Understanding the differences between FICO and Vantage Scores is an important part of understanding your credit scores. For more information or for help with improving your credit scores, contact Build My Scores today.