FICO vs TransUnion: Which Credit Score is Better?

Hello and welcome to our blog! Today, we’re diving into an important topic: “FICO vs TransUnion: Which Credit Score is Better?”.

When it comes to credit scores, many people are still not very clear as to what they are given that there are numerous methods of calculating scores. Concerning credit scores there are two main companies that seem to come to mind every time, and these are FICO and TransUnion.

These are two terms that most people tend to mix up since they are used in the context of the credit industry, but in real essence they refer to two different things. This blog post is intended to clear up any confusion about FICO and TransUnion, to explain why the two are relevant to you, and to help you decide which score might be better to focus on.

Understanding Credit Scores

Credit scores are numerical indices that stand for an individual’s ability to pay his/her debts. These scores enable the lenders to estimate the probability of extending credit to the borrowers. Therefore, the perceived risk reduces with the credit score, so it becomes easier for the borrowers to be approved and secure a loan at lower rates of interest.

Credit scoring models exist in a number of but major credit risk scoring models include FICO scores and VantageScores. These models use data from credit reports, which are compiled by three major credit bureaus: Three credit reporting companies which operate in the United States are Experian, Equifax, and TransUnion.

What is FICO?

The FICO score which is also known as the Fair Isaac Corporation is a data analytics company which came up with the formula used in credit score. Fico was founded in 1956 as the first firm to develop a generic credit scoring system that has since changed the process of credit risk evaluation among the lenders. Fico score normally varies from 300 to 850, the higher the number the better the credit worth of the consumer.

FICO scores are calculated using five key factors:

• Payment History (35%): It’s wise to note that payment history is the most critical aspect that affects your FICO score. It shows if past accounts have been paid off in timely manner. 
• Amounts Owed (30%): This looks at the entire credit limits and credits you are taking in form of loans as compared to the credit available to you, credit utilization ratio. 
• Length of Credit History (15%): One more thing you should know about FICO is that a longer credit history is always more favorable for the score. 
• Credit Mix (10%): This is determined by the types of credit accounts for instance credit cards, mortgages among other credit installment loans. 
• New Credit (10%): This takes into account the amount of newly opened credit accounts and recent inquiries Credit score is arrived at by combining credit history’s account accessibility and payment history with its account new accesses and inquiries.

What is TransUnion?

Contrary to what you have heard, TransUnion is not a credit score but one of the credit reporting agencies in America. It compiles and stores credit information of consumers and then provides them to banks, credit card companies and other companies that offer credit facilities. A credit report compiled and disseminated by TransUnion is an accurate record of one’s credit history involving credit Extension balances, credit card accounts, and credit payment history records among other things. 

This kind of score is produced using information from the credit reports which are provided by TransUnion, just like Experian and Equifax, although often they may employ diverse models, for example, VantageScore or TransUnion particular scores. 

FICO vs TransUnion Scores

This leads many folks to get their credit scores from TransUnion and later on mix between TransUnion and FICO scores because TransUnion uses different models to determine your credit scores including FICO scores. It is pertinent to note that FICO refers to the scoring model while transunion is a credit reporting agency. 

Here’s how they differ: 

Source of Data: FICO scores use information received from the three credit agencies; Experian, Equifax, and TransUnion while TransUnion scores are based on the information held in the credit reports by TransUnion. 

Scoring Model: An example is FICO that employs its own formulas in computing score while TransUnion can employ several models, of which VantageScore which is another model developed independently but by the three major credit reporting firms to compete with FICO. 

Consistency: They are also more uniform which means a FICO score of 700 according to one credit bureau should be the same as that according to another credit bureau given that the credit report information is the same. However, consumers’ scores at TransUnion can be different depending on which model was employed and what information was in the credit reports.

Which Credit Score Do Lenders Prefer?

Ninety percent of the lenders use FICO scores when evaluating a borrower’s ability to repay a loan. From the FICO, it is clear that ninety percent of the top lenders rely on FICO scores while making credit decisions. The rationale behind such preference resides with the fact that FICO is widely known and has been used for a long time in credit risk forecasting. The FICO scores are perceived in the market as reliable and accurate measures of creditworthiness enabling the lenders to make better decisions.

But this does not necessarily mean that TransUnion scores are insignificant. Some lenders can employ raw data from TransUnion such as when they are using a VantageScore model. VantageScore is similar to FICO score and goes from 300 to 850 and takes into account the same pieces of information as payment record and credit card balances.

Key Differences Between FICO and VantageScore

Since TransUnion often provides VantageScores, it’s essential to understand the differences between FICO and VantageScore:

Credit Score Range: The credit scores of FICO and VantageScore range from 300 to 850. But VantageScore which was initially developed had a different range and therefore the current version to be used has to be made known.

Scoring Factors: They are both very much alike in the aspect that they take into account the same factors; however, the importance of each factor may not always be the same. For instance, VantageScore gives more value to total credit, comparison of credit and balance as well as comparison of credit and total amount of credit extension as compared to FICO.

Treatment of New Credit: Some of the explanations to why VantageScore is kind to those who recently applied for credit include flexibility of the model and hence the score.

Data Consideration: VantageScore sometimes takes into consideration less number of months of credit”. For instance, if you have a short credit history of several years or months, you will be assigned a VantageScore, although FICO needs at least six months of credit history.

Which Credit Score is Better?

Deciding which credit score is preferred depends on the situation in which a given score will be used. Here are a few considerations:

For Major Loans: If you are considering any of these as credit reference then a FICO score is more helpful because most lenders in these cases make use of it.

For General Awareness: If you’re just looking at credit or repairing credit, FICO and VantageScore both apply, for example, by TransUnion. Knowing both of them will serve as a better gauge as to how you are faring in your credit ratings.

For Specific Lenders: Certain lenders will operationalize a particular credit bureau or use the VantageScore. In these cases, one might be better served learning one’s TransUnion score instead.

Credit Monitoring Services: Most credit monitoring companies offer VantageScore from TransUnion; therefore, consumers often encounter these scores more often than FICO scores. Even if they are not up to date with the ones used by lenders, these scores offer tips on the kind of credit personality you have.

How to Use Your Credit Scores

No matter which score you’re focusing on, the key to maintaining a good credit score is consistent financial behavior:

Pay Bills on Time: Both FICO and VantageScores are affected by late payments and it is seen that the impact can be high. This can be achieved through setting of reminders for the payments or even automating the payment process to avoid late payment. 

Keep Balances Low: That is bad news for those who carry high credit card balances since the credit utilization percentage is a key component of each scoring model. 

Avoid Opening Too Many Accounts: Every time a lending company checks your credit score before approving your credit application, it will make a ding on your score. 

Check Your Credit Reports Regularly: Check with the TransUnion, Experian, and Equifax and make sure that there is no wrong information included in your credit reports. By law, you’re allowed to get one free credit report from each of the bureaus in a year through AnnualCreditReport. com. 

Build a Mix of Credit: It is evident that having more than one kind of credit, including credit cards, a mortgage or an auto loan will also help your score.

Conclusion

Lastly, it can’t be said that a FICO score is more effective than a TransUnion score; the question is which one is applicable at which time. FICO scores are standard and lenders rely on them when making credit decisions, whereas TransUnion scores which can be VantageScores are also useful because they allow the client to see his/her overall credit standing. 

For consumers the best practice is to periodically monitor both FICO Score as well as the scores from the credit bureaus such as TransUnion. If you do so, it is possible to get an all-encompassing view of your creditworthiness and then take the right measure to ensure that your credit score is either maintained or enhanced.

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