Which Credit Score Matters for a Mortgage? FICO® vs. VantageScore®
While there are many credit scoring models out there, most mortgage lenders use one credit score model. Currently, if the mortgage lenders are originating conforming Fannie Mae and Freddie Mac loans, then they are required to use the FICO credit score model when qualifying a potential borrower.Currently, if the mortgage lenders are originating conforming Fannie Mae and Freddie Mac loans, then they are required to use the FICO credit score model when qualifying a potential borrower. According to the Federal Housing Finance Agency (FHFA), since 2015, FHFA, Fannie Mae, and Freddie Mac (the Enterprises) have been evaluating the potential impact of updating the Enterprises’ credit score requirement from Classic FICO to Classic FICO, FICO 9, and VantageScore 3.0. However, on July 23, 2018, FHFA announced that the Agency would not make a decision in 2018 about updating the credit score model used by the Enterprises, such as Fannie Mae and Freddie Mac.
What are the two major credit models used by lenders, landlords and credit card issuers?
The FICO® and VantageScore® are the two most widely used credit models. Both FICO and VantageScore use similar criteria to measure your creditworthiness but how each process and report your information is different to determine how risky you are as a borrower.
So what’s the difference between FICO® vs. VantageScore®?
A significant difference between FICO® and VantageScore® is how they weigh credit history and the period for reported accounts. VantageScore® allows for a shorter credit history enabling you to establish a credit score in a shorter period. For example, if you have a small credit history and are looking to rent a new apartment or buy a new car, then a landlord or lender may consider a VantageScore better suited to measure your trustworthiness.
How are my credit scores calculated?
Your Credit Scores are calculated based on different categories that can be different based on the credit model used. Here’s a simple breakdown on how your FICO or VantageScore are calculated:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
- Payment history (35%)
- Age and type of credit (about 21%)
- Credit utilization (about 20%)
- Balances (about 11%)
- Recent credit (about 5%)
- Available credit (about 3%)