In the 1970s, the Fair Issacs Company created the first credit scoring system, dubbed the FICO score. This has since been standardized as the industry's leading credit score model to assess potential borrowers. More recently, the VantageScore was created in collaboration with the three major credit bureaus (TransUnion, Equifax, and Experian) as a new generic proprietary credit score model marketed as a more "consistent interpretation" and "accurate score" than FICO. As Credit Karma provides you with your VantageScore for free, here's what you need to know about it.
Credit Scores Vary
First of all, it's important to keep in mind that you do not have one "true" credit score. There are actually over 100 different credit scoring models used in the industry that varies by bureau, reporting agency, model type, and lender. Each model uses a different algorithm that weighs each part of your credit report differently, which explains why you may have a 750 from Credit Karma and a 762 from FICO. We've previously addressed how to understand the credit score differences; there are indeed many different credit score models, but they are all highly correlated. They use different ranges, different formulas, and the information found on your credit report can differ from bureau to bureau, but all the models aim to assess your credit history and translate it into your 3-digit credit score number.
The three major credit bureaus offer their own proprietary models but usually provide the FICO score to lenders. The VantageScore was created as a consistent credit score model across the three bureaus to compete with the FICO score so that they could offer lenders a more standardized score and cut out the Fair Issacs Company.
The VantageScore is being touted as "The New Standard in Credit Scoring", and it can potentially become big if the bureaus can compete successfully with the stranglehold FICO has on lender. It just depends on whether lenders will be willing to change to a different model.
The VantageScore offers additional features that the FICO model doesn't incorporate, such as predictive scoring and a 24-month review of credit history. Here are some of the main differences between the two competitors:
The VantageScore's particular credit scoring method is especially good news for consumers with thin files and consumers who may have prior negative actions against them but have a good recent history.
Again, please keep in mind that the VantageScore is one of dozens of models in use. What is most important is that you monitor and manage your credit health by checking your credit score every few weeks. Keeping track of your credit score over time, not just once or twice, will give you the most valuable insights into how to adjust your credit habits to build towards a healthy score.