FICO® Vs. Credit Score: What’s The Difference?
Not sure what the difference is between a FICO® Score vs. credit score? That’s not surprising – three different credit bureaus are capable of scoring borrowers’ credit history, each of which is prone to applying different models, methods and terminologies.
But the simple fact is that if you’re thinking about applying and qualifying for a mortgage, it’s not only important to understand the difference between a FICO® Score and credit score, it’s also important to know why your credit score matters and how various types of credit score may impact your prospects of obtaining a home loan.
Bearing this in mind, for those wondering what a FICO® Score is, and whether it’s the same as your credit score, let’s take a closer look at how all these scores play into the real estate world.
What’s A FICO® Score?
The FICO® Score was created by the Fair Isaac Corporation (FICO®) and is a three-digit number based on your credit report. Lenders use your FICO® Score to determine loan options based on past credit history.
In effect, from a real estate buyer’s perspective, those financial providers that offer home mortgages to borrowers will look to your FICO® Score alongside other details on your credit reports to weigh credit risk and decide if they’re comfortable extending you credit. The better your FICO® Score, the better your chances of securing a home mortgage – and the better the terms under which these loans will typically be extended.
Fair Isaac Corp. applies a proprietary method to compute your credit score. But generally, your FICO® Score is impacted by the following five factors (each weighted respectively as indicated):
- Payment history (35%): This is looking at how effectively you’ve maintained a track record of timely payments. The more consistently that you make on-time payments, the higher your score will trend. Conversely, the more late payments that you rack up, the lower it will lean. Unpaid balances or accounts that have gone to collections can also negatively impact your score, as can bankruptcies or foreclosures.
- Amounts owed (30%): This category looks at the amount that you owe in total across revolving debts (like credit cards) and installment debts (like personal loans, car loans, and home mortgages). Maintaining lower balances in relation to your overall credit limit can help you maximize chances of notching up a good credit score.
- Length of credit history (15%): The longer your track record of maintaining a credit history, the better for your credit score it tends to be. In effect, the more data lenders have to look at (and the better that this data reflects on your financial habits), the higher your FICO® Score will trend.
- Credit mix (10%): Lenders also like to see that you’ve been able to manage a healthy mix of different revolving and installment credit facilities, which reflects positively on your perceived ability to balance a budget.
- New credit (10%): As it turns out, every time that you apply for a new loan or credit card, your credit score temporarily decreases. However, if you’re diligent about making payments on time, maintaining manageable credit balances, and otherwise making ends meet, your score should quickly recover.
Is FICO® Score The Same As Credit Score?
On the one hand, the terms “credit score” and “FICO® Score” are often used interchangeably. However, be advised: A FICO® Score is just one type of credit score – noting that different scoring providers and methods (for example, VantageScore®, as discussed below) exist.
Most FICO® scores hover within the 300 – 850 range, with tallies above 670 considered a good score. (Although different scoring ranges, like 250 – 900, can be found in other industries such as auto loans and credit cards.)
Financial providers can look to various choices of credit bureau and reporting methods when seeking to compute your credit score. That said, typically, when mortgage lenders are seeking to gauge your creditworthiness, the credit score they’re likeliest to consider is that provided by FICO®.
Having a higher FICO® Score can help increase your chances of obtaining a loan and securing it from a wider pool of potential providers significantly.
What Is A VantageScore®?
A VantageScore® was jointly developed by three credit bureaus – Equifax®, Experian™, and TransUnion® – as a more consumer-friendly credit scoring system. It essentially offers credit applicants more approachable and actionable reporting information that explains how an individual can improve their credit score based on data provided in their credit report. Your VantageScore® can be used in tandem with your FICO® Score by lenders to determine if your mortgage application will be approved, and at which interest rate.
Six factors play into the formula through which your VantageScore® is calculated. Although actual weighting is unspecified, credit bureaus have noted how impactful each factor can be with regards to overall level of influence. These categories include:
- Payment history (extremely influential): As with your FICO® score, VantageScore® puts its heaviest emphasis on your overall payment record. A track record of making on-time payments helps. Likewise, as before, one of late payments, charge-offs, collections, bankruptcies, and foreclosures can negatively impact your credit score.
- Age and type of credit (highly influential): Credit bureaus who use the VantageScore® system will review both your credit mix (including revolving and installment accounts) as well as how long you’ve maintained these credit facilities for. The older and more extensive your credit history, the better off you’ll be.
- Percentage of credit limit used (highly influential): Prior behavior with regard to credit is perceived by bureaus to be a significant predictor of future credit risk. Keeping this in mind, you’ll want to keep your credit utilization (i.e., the balance you carry relative to your overall credit limit across all of your accounts) as low as possible. It’s recommended that you keep this figure under 30%.
- Total balances/debts/available credit (moderately influential): Bureaus will also look at your credit balance and existing debt to get a better snapshot of your overall financial picture. The lower the balances are on the debts that you maintain, the higher that your VantageScore® will tend to be.
- Recent credit behavior (less influential): A category that examines and considers how recently you opened new accounts. In essence, you don’t want to open a bunch of new accounts in rapid succession, because bureaus may interpret it as a potential sign that you’re overextending yourself financially.
- New credit (less influential): This factor considers the number of credit accounts you have that are recently opened or new loans you may have taken.
Recent versions of the VantageScore® formula tend to adopt a 300 – 850 scoring range, as with one’s FICO® Score.
FICO® Score Vs. VantageScore
Your FICO® Score and VantageScore® are both forms of credit score. While the pair can be used alongside one another, each is determined using a different methodology, provides information in different formats, and is used by different financial providers.
Note that although it’s not the scoring method preferred by most lenders, some version of the VantageScore® formula is the one that’s typically most widely available to consumers via credit and finance sites like Rocket HomesSM 1,2. While the formulas behind it and the FICO® Score aren’t identical, the VantageScore® provides actionable information on how your credit is trending – and where room for improvement exists.
Why Is Credit Score Important For Mortgage Lenders?
Your credit score provides a quick-hit snapshot of your financial habits and overview of your credit history that provides mortgage lenders with a sense of how much risk that they might be taking on in deciding to lend to you. Financial providers therefore use credit scores to get a better sense of how dutiful loan applicants are about managing their money, paying bills, and repaying loans … and if they’d make good customers.
Credit bureaus help mortgage lenders compute your credit score when buying a house. This is one of the most important mortgage qualification factors.
Worth noting as well: Mortgage lenders will typically look at your credit information from all three bureaus (each of whom may possess different information) whenever possible.
Tips For A Good Credit Score
If you’re looking to buy a home, you’ll want to either boost your credit score or make sure that you’re continuing to maintain it in good condition. Simple actions that you can take to help improve your credit history, and notch up a better credit score, include as follows:
- Pay bills on time
- Keep old credit cards open
- Review and keep track of your credit reports
- Live within your financial means
- Don’t lean too heavily on credit
- Maintain a balanced mix of credit types
- Dutifully correct any credit reporting errors
The Bottom Line
If you’re still wondering how a FICO® Score vs. credit score breaks down, consider the following.
A FICO® Score is a three-digit scoring number based on your credit report that’s utilized by financial lenders to determine your general creditworthiness, and what loan options to extend to you based on your past credit history. It’s one form of credit score.
Your VantageScore® (another type of credit score) applies a slightly different set of criteria to calculating your overall financial well-being and attempts to provide more user-friendly information as part of associated reporting.
Under any circumstance, having a better, longer, and more reliable credit history can help you build and maintain a good credit score – which is important to have when you’re wanting to buy a house or take out a loan in general.
For more tips on building, rebuilding, and improving your credit, be sure to check out the Rocket Mortgage® Learning Center as well. If you feel like your credit is in good shape and you’re ready to purchase or refinance a home, you can apply online or give us a call at (888) 452-0335.
1 Rocket Homes℠ is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act.
For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers.
California DRE #01804478
2 Rocket Mortgage, LLC and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rocket Companies, Inc. (NYSE: RKT). Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation and applicable legal and regulatory requirements.