Many first time home buyers run into a nasty surprise when they go to the bank or their lending institution and find out that their FICO credit score is much lower than the free credit report states that was obtained from the internet. The reason may not be clear to home owners and feels like their mortgage lender is cheating them out of percentage points. Unfortunately, it’s the current competition in place and not the lender or the consumers fault.
FICO vs Vantage
Before 10 years ago, this problem did not exist. There was only one place that all consumers, lenders and other institutions could obtain a consumer credit report; from the Fair Isaac Corporation (FICO). The database repositories of consumer credit information behind the FICO credit reports are Experian, Equifax and TransUnion. These repositories of information, decided that they should put together their own credit reports, as they were the holders of the information anyways.
Of course, this was done after FICO had already become a household name and used by most lenders and the source of online free credit reports that most consumers get. Now, 10 years later, these 2 competing systems of credit scoring is creating some situations where consumers are getting the raw end of the deal. More lenders are using the new system, named Vantage 3.0 which has caused this disconnect. Consumers are still getting their credit reports online free which is a FICO credit score. This same score is their basis of comparison. Yet if their mortgage lender is using the Vantage system, and is much lower than the FICO, it is where the differences in credit scores are occurring.
How do they differ?
The two major systems have further complicated the issue and possibly made the ranges more pronounced by using different modeling and computational models to determine a consumer’s credit score. Vantage 3.0 now uses the same credit range as FICO 300-850 but this was not always the case.
FICO requires 6 months of billing history whereas Vantage only requires 1 month allowing Vantage to credit score millions more consumers, but on less information. AS far as late payments, both systems consider frequency, recency, and severity, but Vantage penalizes late mortgage payments more than FICO leading to scoring differences for those individuals.
Inquiries, although only a small part of the score, sometimes even a couple points can affect a mortgage. Yet both systems use a vastly different model when it comes to inquiries about a consumer’s credit. FICO uses a 45 day span, while Vantage is more forgiving, using only a 14 day span. However Vantage applies these inquiries across all types of credit, FICO only uses it for mortgages, auto and student loans.
Vantage also includes a vast amount of credit information from a company that Experian purchased that collects data on Renters and their payments, which is not included in the FICO database. The renter’s portion of Vantage however only includes large renter companies and not smaller ones. Lastly, collections, especially low dollar amount outstanding balances may affect your score from Vantage but not from FICO.
If you are getting two very different numbers for your credit score, find out which system your lender is using. It may be worthwhile to get a lender using the same system that your free credit report is getting. Or at the least find out where the differences lay and try to bring them to your lenders attention.