Different Types of Credit Scores Explained: FICO, Vantage, CreditWise

The world of consumer credit scores can be complex and confusing. Understanding the credit scores basics, and the different types of credit scores, is an essential personal finance skill that starts with knowing you may have four or more scores. They’re all different!

Let’s start with the similarities these four scores share. The higher the score the better, no matter which score you’re seeing or the type of credit you are applying for. Each of them is on a point scale from 300 to 850 points, and uses an individual’s payment history, amount of outstanding debt, length of credit history and new credit inquiries in their calculations. Other variables are used as well, and each model approaches calculation of the score differently.

What are the four most common credit scores?

The four most common credit scores you will see are the mortgage credit score, our main focus here, plus the FICO, Vantage and CreditWise scores. While our focus is on mortgage credit scores, let’s quickly cover the other three:

• The FICO score is the most widely used credit score in the United States and is based on an individual’s credit history. The FICO score is calculated by the Fair Isaac Corporation, which is where the name “FICO” comes from.
• The Vantage score is a newer type of credit score that is calculated by the three major credit reporting agencies: Equifax, Experian, and TransUnion. One unique feature of the Vantage score is that it can be calculated using alternative credit data, such as utility payments, rental payments, and cell phone bills.
• CreditWise is a type of credit score that is offered by Capital One to its customers. This score is based on data from TransUnion, one of the major credit reporting agencies. It is updated weekly and provides alerts for changes to an individual’s credit report. It’s also important to note that it, unlike the other two, may not be used when lenders make credit decisions.

The mortgage credit score is specifically used by lenders when they consider a potential borrower’s mortgage application. While it is calculated using many of the same factors as the other three scores, it is often the lowest of the four scores, which highlights two things about it:

• It is calculated differently. The variables that go into a credit scoring model – think of these models as one, big formula, are weighted differently for different purposes, and for the types of credit for which they are accessing risk.
• A mortgage is a type of credit unto itself. Mortgage loans are typically the largest, longest-term loans any individual will ever take out. The size of the loan and the number of years an individual will make payments on the loan demand a different formula for assessing risk, than, say a credit card loan.

Should I worry if my mortgage credit score is lower than the others?

Mortgage applicants shouldn’t be concerned that their mortgage credit score is lower than, say, their Vantage or FICO score. This is almost universally true for all potential mortgage borrowers, so, in that sense, the playing field is level. That’s not to say that every mortgage consumer should assume their mortgage credit score cannot be higher.

Approximately 2/3 of all potential mortgage borrowers can legitimately improve their score by at least one 20-point credit band within 30 days. This does not mean your credit score is wrong if you’re in this 2/3.  It does mean that it can be ‘tuned-up’. Every mortgage lender knows this, and every mortgage lender should offer their assistance making the improvements.

We know this because this is our business. In addition to knowing that 2/3 of mortgage consumers can improve their scores, we know what actions need to be taken for those improvements to happen. We’ve been analyzing credit score data for more than two decades, and, like the credit scoring models, our ‘formulas’ produce highly reliable action plans for borrowers. And relying on a data-based plan is essential. Guessing on the steps to take to improve your credit score could actually make it worse!

Can I still improve my credit score during the mortgage process?

Why improve your mortgage credit score before or during the mortgage process? Simple. Mortgage credit scores are one of the main determinates of your mortgage rate. Mortgage rates determine your monthly mortgage payment plus the total amount of interest you will pay while you have the loan.

When applying for your next mortgage loan make sure to ask your lender about improving your credit score. Chances are very good that they see the potential for improving your credit score on the credit report they access as part of the mortgage application process. Ask them for the improvement plan, and work with them to take the steps necessary to raise your score. Doing so won’t take much time, and it will save you money.

To learn how mortgage credit score compares to consumer credit score, read our blog explaining it all here.