The Best Credit Score for the Multifamily Housing Industry

Credit scores (or “credit risk scores”) are widely used within the rental housing industry to gauge a rental applicant’s financial prowess. You know the drill – generally, the closer your score is to 850, the easier it is to secure loans, lower interest rates, and rental housing. While you might know all about credit scores as a consumer, do you know the differences between the most common credit scoring models from a rental housing standpoint? We’re looking at the benefits of VantageScore vs. FICO when doing resident screening, and how credit scores are impacted by COVID-19.

“What is a credit risk scoring model?”

While there are tons of credit risk scoring models out on the market, the most commonly used and referred to are VantageScore and FICO. These two models take a consumer’s credit information from the 3 credit bureaus and analyze it through their formula to generate a credit score.

Credit scores (or “credit risk scores”) are widely used within the rental housing industry to gauge a rental applicant’s financial prowess. You know the drill – generally, the closer your score is to 850, the easier it is to secure loans, lower interest rates, and rental housing. While you might know all about credit scores as a consumer, do you know the differences between the most common credit scoring models from a rental housing standpoint? We’re looking at the benefits of VantageScore vs. FICO when doing resident screening, and how credit scores are impacted by COVID-19.

“What is a credit risk scoring model?”

While there are tons of credit risk scoring models out on the market, the most commonly used and referred to are VantageScore and FICO. These two models take a consumer’s credit information from the 3 credit bureaus and analyze it through their formula to generate a credit score.

The Consumer’s Credit Information  + Credit Scoring Formula = Credit Score!

Keep in mind that the credit scoring formula can differ depending on the purpose of the report. For example, the formula used to calculate the credit score for a car loan might be different than the formula used for housing purposes as the model might weigh certain financial decisions differently. This means that everyone’s credit scores can be slightly different depending on what you’re applying for. But don’t worry, the difference between scores is usually small.

Keep in mind that the credit scoring formula can differ depending on the purpose of the report. For example, the formula used to calculate the credit score for a car loan might be different than the formula used for housing purposes as the model might weigh certain financial decisions differently. This means that everyone’s credit scores can be slightly different depending on what you’re applying for. But don’t worry, the difference between scores is usually small.

“Are there any other credit risk scoring models, other than FICO and VantageScore?”

Yes! But be wary. FICO and VantageScore are the industry standard for a reason. Other, less-reputable scoring models might differ from your average 300-850 scoring range by using a range that always favors the applicant or is skewed in favor of the company you’re receiving it from. We’ve even seen some credit scoring models step away from numerals and send smiley faces, checkmarks, and other strange grading systems as their official credit score. This is why it’s important to get your resident screening done by a reputable screening service.

“Are there any other credit risk scoring models, other than FICO and VantageScore?”

Yes! But be wary. FICO and VantageScore are the industry standard for a reason. Other, less-reputable scoring models might differ from your average 300-850 scoring range by using a range that always favors the applicant or is skewed in favor of the company you’re receiving it from. We’ve even seen some credit scoring models step away from numerals and send smiley faces, checkmarks, and other strange grading systems as their official credit score. This is why it’s important to get your resident screening done by a reputable screening service.

“What are the benefits of VantageScore vs. FICO?”

FICO

Developed by Fair Isaac and Company in 1989, FICO is one of the oldest credit scoring models out there. Since the ‘80s, the company has revised it’s credit risk score model multiple times with FICO Score 8 being one of the more recent versions. According to myFICO, these are a few of the benefits of using the FICO credit scoring model:

“What are the benefits of VantageScore vs. FICO?”

FICO

Developed by Fair Isaac and Company in 1989, FICO is one of the oldest credit scoring models out there. Since the ‘80s, the company has revised it’s credit risk score model multiple times with FICO Score 8 being one of the more recent versions. According to myFICO, these are a few of the benefits of using the FICO credit scoring model:

  • It’s well recognized and widely used by lenders

The FICO credit scoring model is not only used for rental housing decisions. It has been the standard credit score in many different industries since the ‘80s. Because of this, rental applicants are familiar with the scoring model range (300-850) and their prior FICO scores.

  • It’s constantly evolving to meet different industries’ standards

As one of the oldest scoring models, the company has years of experience with adjusting the model to fit the current financial climate. They update the model to reflect current spending behaviors (like the increased use of credit cards). Aside from the base FICO model, they also offer industry-specific scores.

  • It’s well recognized and widely used by lenders

The FICO credit scoring model is not only used for rental housing decisions. It has been the standard credit score in many different industries since the ‘80s. Because of this, rental applicants are familiar with the scoring model range (300-850) and their prior FICO scores.

  • It’s constantly evolving to meet different industries’ standards

As one of the oldest scoring models, the company has years of experience with adjusting the model to fit the current financial climate. They update the model to reflect current spending behaviors (like the increased use of credit cards). Aside from the base FICO model, they also offer industry-specific scores.

VantageScore

The VantageScore model was developed in 2006 by the 3 major credit bureaus (Experian, TransUnion, and Equifax). Unlike FICO – which is an independent credit scoring company that gets its information from the bureaus to generate a risk score – VantageScore cuts out the middleman by directly sourcing from the bureaus’ data. According to Experian and VantageScore, these are some notable benefits to using VantageScore credit scores:

        • Millions of more applicants have a credit score

VantageScore is able to provide a score to 30-35 million adults who would have otherwise been virtually credit invisible (we call these consumers, “credit thin”). Those with “credit thin” files like college students or high-school graduates, typically just don’t have enough credit information to meet the minimum scoring requirements. For FICO, consumers must have a credit account (also known as “tradeline”) that’s at least 6 months old and has had activity within the 6 months. With VantageScore, applicants can be scored so long as they have one tradeline account, even if it’s less than 6 months old. This increases the chance your applicants’ report will come back with a credit score.

        • All three bureaus receive the same report

Regardless of whether your resident screening service receives their credit reports from Experian, Equifax, or TransUnion, the VantageScore credit report will be the same. Meaning no confusion for your applicants. FICO – on the other hand – creates bureau-specific scoring models, which means scores could even vary based on who you get the report from.

“What else is on the credit report?”

When choosing a resident screening service that offers FICO or VantageScore, keep in mind that the credit scoring model only affects the credit score. The rest of the credit report will show the applicant’s credit information, like:

          • A summary of their positive and negative credit accounts (also known as “tradelines”)
          • Their total estimated past due and monthly debts
          • A breakdown of their accounts
          • Payment history
          • Any prior credit inquiries and when the inquiry was made

“Will credit scores be affected by COVID-19?”

VantageScore

The VantageScore model was developed in 2006 by the 3 major credit bureaus (Experian, TransUnion, and Equifax). Unlike FICO – which is an independent credit scoring company that gets its information from the bureaus to generate a risk score – VantageScore cuts out the middleman by directly sourcing from the bureaus’ data. According to Experian and VantageScore, these are some notable benefits to using VantageScore credit scores:

    • Millions of more applicants have a credit score

VantageScore is able to provide a score to 30-35 million adults who would have otherwise been virtually credit invisible (we call these consumers, “credit thin”). Those with “credit thin” files like college students or high-school graduates, typically just don’t have enough credit information to meet the minimum scoring requirements. For FICO, consumers must have a credit account (also known as “tradeline”) that’s at least 6 months old and has had activity within the 6 months. With VantageScore, applicants can be scored so long as they have one tradeline account, even if it’s less than 6 months old. This increases the chance your applicants’ report will come back with a credit score.

    • All three bureaus receive the same report

Regardless of whether your resident screening service receives their credit reports from Experian, Equifax, or TransUnion, the VantageScore credit report will be the same. Meaning no confusion for your applicants. FICO – on the other hand – creates bureau-specific scoring models, which means scores could even vary based on who you get the report from.

“What else is on the credit report?”

When choosing a resident screening service that offers FICO or VantageScore, keep in mind that the credit scoring model only affects the credit score. The rest of the credit report will show the applicant’s credit information, like:

    • A summary of their positive and negative credit accounts (also known as “tradelines”)
    • Their total estimated past due and monthly debts
    • A breakdown of their accounts
    • Payment history
    • Any prior credit inquiries and when the inquiry was made

Every person’s credit situation is different and each model ranks certain financial situations (like nonpayment due to a pandemic) differently, so there is no definite yes or no answer. However, under the Coronavirus Aid, Relief and Economic Security (CARES) Act, lenders that report financial data to the credit bureaus will not cause consumer credit scores to go down. VantageScore is also adjusting their models to minimize the negative impacts used with forbearance and deferment codes for loans.

“Will credit scores be affected by COVID-19?”

Every person’s credit situation is different and each model ranks certain financial situations (like nonpayment due to a pandemic) differently, so there is no definite yes or no answer. However, under the Coronavirus Aid, Relief and Economic Security (CARES) Act, lenders that report financial data to the credit bureaus will not cause consumer credit scores to go down. VantageScore is also adjusting their models to minimize the negative impacts used with forbearance and deferment codes for loans.

The three credit bureaus have also made consumer credit reports (without credit scores) available for free, weekly for a year.

At the end of the day – it’s all about what you want for your rental properties. Credit reports are the cornerstone of resident screening and choosing which credit scoring model to champion can make a difference when leasing. Will you choose the more recognized FICO score? Or, will you go with VantageScore, which can score more rental applicants? Thankfully, CIC offers both VantageScore and FICO so you’re always in control of your rental property’s important leasing decisions.

The three credit bureaus have also made consumer credit reports (without credit scores) available for free, weekly for a year.

At the end of the day – it’s all about what you want for your rental properties. Credit reports are the cornerstone of resident screening and choosing which credit scoring model to champion can make a difference when leasing. Will you choose the more recognized FICO score? Or, will you go with VantageScore, which can score more rental applicants? Thankfully, CIC offers both VantageScore and FICO so you’re always in control of your rental property’s important leasing decisions.

Which do you VantageScore or FICO?

Which do you VantageScore or FICO?

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Becky Bower is the Content Strategist here at the CIC Blog. She holds a degree in English, with a focus in creative writing, from CSU Channel Islands. Her biggest weakness is cake and favorite superhero is Batman.

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