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Understanding Credit Scoring Models: FICO, Vantage Score & Credit Scores Effects

Credit scoring models use a statistical analysis to decide the risk factor of a person looking for financial aid. The various agencies that provide these figures will look into the credit history of an applicant to decide what score their previous payment records make them a worthy of.


Scoring calculations can be based of many different points but basic payment records and amount of debts are two of the most important factors. Lenders will then use these figures to decide how much of a risk a particular person will be and decide how sizable a credit line they are capable of handling correctly.

FICO Scoring Model

Often considered the most reliable scoring model the FICO scoring model has an excellent track record. It has been in existence since the late 80s and seen several important revolutions that have increased its compatibility with modern financial markets and institutions. These adjustments have created precision scoring model that can provide and accurate credit score. The latest Fico Scoring model is FICO 9 and was released in 2014. The biggest difference between FICO 9 and its predecessors was the emphasis placed on unpaid medical bills. Consumers will receive a score that falls between 300 and 850. Any score that falls short of 600 can be considered a low score while any that is above 740 can be considered high. Averages fall between these two numbers.

How Are FICO Scores Calculated?

There are five important factors that go into making the classic FICO score. While each factor can have many subdivisions that can further affect scoring knowing a little bit about what goes into the score is the first step in improving it.

  • Payment History: The history you have of addressing your debts accounts for a full 35% of your FICO score. If you make your payments on time at the end of the month and don’t have a history of lawsuits, liens, foreclosure or bankruptcies, you can expect a good score in this area. Late payments incur poor scores, the later the payment the worse the score.
  • Credit Utilization Ratio: Your Credit Utilization ratio is the next big factor from your FICO. you want to stay as far away from your full credit limit as you can each month. Stay away from your full credit limit even if you are fully considering to pay off the entire debt by the end of the next month. FICO prefers its consumers to limit themselves to 30% of their full credit limit to enjoy a good rating.
  • Credit History: Your credit history will be the next 15% of your total FICO credit score. The longer the consumer can hold a credit card and keep the balance nice and low, the greater this rating factor can improve. As long as you can fully pay off your monthly dues you can appoint your budget however it suits you best.
  • Credit Use: Credit use is all about how much credit you have and in what forms (utilities, auto, mortgage and others) as well as how well you can address your financial responsibilities. This accounts for the next 10% of your FICO score.
  • New Credit: The final category for factors that affects FICO score is for new credit. This makes up the last 10% of the total. While it is OK to take out more lines of credit, if you have applied for several at the same time, this could be an indication of trying to pay one off with a few others. This can cast a bad light on your financial actions. The same idea applies to taking out other home loans or car loans. It is always best to spread out these loan applications over time.

The VantageScore Model

Introduced in 2006 The VantageScore model was comprised of the Equifax, Experian, and Transunion credit scoring models decided to give FICO a run for its money. The Vantage Point uses basically the same factor to produce their credit scoring number, like keeping a prompt payment plan and not going over the designated credit limit. The biggest difference between the Vantage Point and the FICO is that the vantage point only looks at the last month’s history to decide what they credit score will be. FICO and most other credit scoring models will look at the past six months of credit history. Another unique factor about the VantageScore Scoring model is that collections are not included in the figure whether they were paid or unpaid. They also offer relief for accounts damaged by natural disasters. The VantageScore Scoring model also provides each consumer with a score between 300 and 850, but a letter is also assigned to make the score easier to understand.

Final Notes

In the end, all credit scoring models work to provide financial institutions with a score for each consumer’s spending and financial habits as well as level of responsibility. Those who hope to reach higher levels of cash resources should consider how they address their financial issues as these will have serious impacts on future spending capacity.