What You Need to Know About the Credit Rating Systems Ruling your Life

One of the most important things you need in order to participate in the formal economy is a credit score – and good one, at that. A credit score is a number that somehow weighs a number of factors related to how a person repays debt that other lenders use to determine whether or not to give you more debt.

While it decides almost your entire financial future, it’s not really a number that most people are able to see easily, understand, or improve. On top of that, there are two primary credit score types that are calculated two different ways.

The FICO is the most popular and has an array of variations. It was created by the Fair Isaac Corporation in 1989. VantageScore, the less popular version, was added in 2006 and uses the three credit bureaus (Experian, Equifax, and TransUnion) to formulate the score.

FICO and VantageScore mostly use the same general information – payment history, credit age/mix, credit utilization, balance, recent credit applications, and available credit – to determine credit ratings and they both use a scale of 300 to 850 to give you a ballpark of where you stand.

There are, however, many differences in the formulas used to get to that ballpark number.


Breaks down exactly how much it weighs each factor into the final score with percentages

• Takes six months to begin creating a score

• Considers all late payments equally

• Limited options to check for free

• Lenders use this more frequently to check credit worthiness

• Doesn’t take into account miscellaneous bills, such as phone and utility



• Uses vague subjective terms, such as “extremely influential” or “moderately influential”

• Provides your score after one month of credit history

• Takes into larger consideration certain late payments, like mortgages, over others

• Many tools to check online for free

• Grown over the past decade, but still not popular among lenders

• Takes into account utility and phone bills

There are also other subtle differences between the two scores when it comes to multiple credit inquiries for the same loan and how the data is gathered.

The main thing to keep in mind is that while the Fair Isaac Corporation has existed since the 1960s and uses data from the three credit reporting agencies, it is an independent business; therefore, it’s the most neutral ranking. VantageScore, however, is owned by the bureaus themselves.

FICO and VantageScore aren’t even the only financial health ratings – there are over a thousand others with various levels of market penetration for various types of lenders, but you’re unlikely to encounter them for most lines of credit.

“Loan officers with their local knowledge, access to private and qualitative information on their borrowers play the most important role in assessing credit risks,” Maria Loumioti, an assistant professor of accounting at the University of Texas in Dallas, said to WalletHub. “Loan officers should be looking for borrower’s accountability, responsibility, character, personality and other soft data when making a credit decision, not just a standardized score.”