debt

Credit score choice: VantageScore or FICO

Steve BucciQuestionDear Debt Adviser,
My question is about the new VantageScore credit scoring system. I have always had A-plus credit under the FICO credit score system. I have a long credit history -- more than 20 years -- of multiple types of credit, with no late payments or derogatory information EVER. Now, under the VantageScore system, I have what ranges from a high-C to low-B grade, between 780 and 830. Am I really seen as more of a credit risk with this new credit score system? One difference I have read about is that I have never had a mortgage. Is it true that I am now penalized because I have chosen not to buy a home? Seems kind of silly, as really the whole point of a good credit score is, well, to be able to get good terms when you do decide to buy a house. Any information would be appreciated. Thank you very much for your time.
-- Laura

AnswerDear Laura,
No, you are not more of a credit risk because your lender uses the VantageScore rather than a FICO credit score. I'll bet that when you look in the mirror, you think you are too fat or too thin; too tall or too short! Your credit score is beautiful, and I'm sure so are you. There is nothing wrong with a 780 to 830 credit score from VantageScore. When someone tells me they have A-plus credit, I generally find that I am dealing with a relative credit novice, and that's not a bad thing. The term A-plus is often thrown around by lenders and borrowers who overgeneralize and want to sound impressive to the other party. In my book, there is no such thing as A-plus credit. There is only good enough credit or not.

In your case, you are looking for good enough credit to get the best deals on loans. According to the VantageScore scale that you cite, prime credit (as opposed to sub-prime) starts at 701 and goes to 800. Your scores fall into either VantageScore Prime or the Prime Plus categories. Assuming you meet the other criteria that lenders have recently rediscovered like having a job, disposable income to pay the loan and a sufficient down payment, I don't see a problem.

You were also concerned that you might be penalized for not owning a home already. I don't think so. From a scoring standpoint, one credit score versus the other should rank you similarly with or without a home, all else being equal. It is possible that the lender would have liked to see a previous, successful, homeownership on your record. This would go one more step in assuring them that you can handle a home, and its unexpected expenses and challenges. Plus, a lender could be more comfortable if you could prove through a previous mortgage loan that you are able to manage a long-term, large loan without any problems. But, just because you have never had a mortgage loan does not mean that you will have any trouble qualifying for one. I am sure that you will qualify for a very good rate of interest with terms that are favorable for you, based on your credit score.

One more thing about the new VantageScore credit score model. One of the major benefits that VantageScore claims for their scoring model is that it provides a way for consumers who have what is often termed a "thin" credit file -- one with few credit lines or credit that is not used very often -- to receive an accurate credit score.

As far as your concern about obtaining a mortgage loan when you are ready to buy a house, I wouldn't worry. You have an excellent credit history that will be reflected in your credit report. And remember, mortgage lenders are not going to make a lending decision based solely on your credit score. One last piece of advice is to get copies of your credit reports six months before you decide to purchase. This way, if you find any errors or out-of-date negative items, you'll have time to dispute them and have them removed.

Good luck!

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