FICO or Vantage: Two Methods of Looking at Your Credit

In 1956 one of the earliest applications of IBM computers was conceived by engineer Bill Fair and mathematician Earl Isaac in San Jose, California. The two conceived their idea while working together at the Stanford Research Institute in Menlo Park. Two years later the two pitched their FICO system to fifty American lenders. This was the birth of the FICO® credit score, a financial measure that has shaped American financial lives for more than six decades.

What Credit Scores tell Lenders about You

It is easy to take for granted the fact that today you can go online 24/7 and get a credit decision from many companies in just seconds. Such decisions previously took days or weeks and filling out long forms of personal information. The primary reason for this change is based on the ability of FICO scores to predict your ability and willingness to pay.

Traditional FICO scores provide you with a number between 300 and 850 based on five primary financial factors. These include information about how you (and usually your spouse) handle your finances by showing:
· How you pay your bills
· How much you owe
· Who you owe and what types of credit you have
· Recent applications for credit
· How long your credit history has been established

The lower your score, the harder and more expensive it is to get credit for everything from credit cards to mortgages. Likewise, a high score will usually provide access to the very best financing options. When I meet with potential home buyers seeking to finance their purchase, one of the first things we focus on is that FICO score.

This is because most of the mortgage companies we work with build their lending programs around the FICO program. This has been the case since the late nineties, when Fannie Mae and Freddie Mac started the trend. They feel this allows them to assess risks and determine the segment of borrowers that fit their business model.

A New Player in the Credit Score Market

While the FICO score is still the dominant credit factor with mortgage companies, I am finding that an increasing number of our clients now track their VantageScore® . This credit resource was created in 2006 by the three major credit reporting agencies, and it is increasingly popular with both consumers and some lenders.

While VantageScores use much of the same basic information (with added emphasis on credit available), it does not rely on a rigorous a formula as FICO reports. However, both scores are ultimately most impacted by how you handle your credit and how reliably you pay on your existing debts.

One of the primary advantages of the Vantage Score process used by sites such as Credit Karma is your ability to access your current score for free and with no impact on your FICO as a “hard enquiry.” Since the two scores track closely (if your FICO goes up, so will your VantageScore), this free update from VantageScore lets you know you are on track improving your credit or you have an issue that needs addressing.

Which Credit Score Matters Most

I am asked this question more frequently these days, and my answer has three parts. First, there is always a difference between the scores, and there are a variety of reasons for those differences. Secondly, I will tell each of our clients that the score is only an indicator – both scores reflect your credit standing at a given point in time.

The third element of my answer is that for today’s lenders the FICO remains the most important for your mortgage search. Call us – we can help you understand how to help ensure you have the best chance for best mortgage, and to keep both your credit scores in a respectable range.