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Until recently, when someone talked about a credit score they meant a FICO credit score. Credit scores are numerical gauges of consumer financial history, stability, and ability to handle credit and loans.
For a while, FICO credit scores served as the default credit rating in the marketplace. Although other financial institutions had their own credit scoring models, FICO stood out as the giant in the room; however, FICO is based on financial information and records – something that can be done by other companies.
Credit Karma is another company that provides financial data, including a free credit score, to borrowers. Credit Karma relies on VantageScore from Equifax & Transunion. FICO & VantageScore offer the same info, but they are based on two different proprietary models.
Both Vantage and FICO seek to represent the borrower’s probability of default in a different way. However, which one is better? Can one of them even be better than the other? What are their differences? Similarities? Those questions are answered here.
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Credit Karma vs. FICO Score: Differences
Each credit scoring model has a different way of evaluating and weighing data in order to generate an individual credit score. Although there is no way to specifically evaluate those differences, it is important to note that all of the models use the same data.
One of the major differences between Vantage and FICO scores is the way older FICO credit models handle charge card accounts. Some charge cards require borrowers to pay the outstanding balance at the end of each month, so there are no monthly payments.
Many of these charge cards don’t have set credit limits associated with them, which can impact the credit utilization factor in the credit scoring model. Only the most recent version of the FICO score ignores charge card accounts in its calculation, but all Vantage scores ignore charge card accounts when evaluating credit utilization.
Another difference is how these models weigh late payments. A late mortgage payment is more impactful on a VantageScore, while all late payments are treated equally by FICO score.
The Vantage credit scoring model may also have advantages over FICO when it comes to evaluating the creditworthiness of a borrower who doesn’t have a lot of recent credit activity. The common consensus is that it is easier to build credit in the eyes of VantageScore compared to FICO.
Credit Karma vs. FICO Score: Similarities
In the end, these are both numerical values that gauge a consumer’s creditworthiness, weighing debt repayment history, credit mix, utilization ratio, and more. They use the same data, and they both have upper and lower boundaries of 850 and 300, respectively.
Although FICO has the largest market share, companies with other credit scoring models are making significant waves in the market. Most of the top financial institutions in the U.S. now utilize Vantage credit scores in addition to FICO credit scores.
Regardless of what the companies use, it’s bodes well to know your score from several different credit scoring models. That way, there are no nasty surprises waiting for you while trying to get a loan.
Author: Jeff Gitlen