It’s been over 4 years since VerticalRent was made available to landlords, property managers, real estate agents, and brokers. We started our journey with a different name and a different core competency. In the beginning, we were known as “RentCloud” and focused exclusively around online rent collection. Fast forward to 2013 and we became Experian’s first reseller of the VantageScore Credit Report. A score is a score, right? Well, yes and no. Since VerticalRent now offers both VantageScore® and FICO®, it’s time to officially understand the similarities – and more importantly – their differences.
Although VantageScore has been on the market for nearly 10 years, we heard several objections from brokerage and property management firms along the way. In fact, we lost a few large customers because they weren’t entirely confident with VantageScore over FICO. After all, VantageScore is a relatively new player in the world of credit scores. Make no mistake, FICO is still the gold standard of credit scores for lending/credit decisions and purportedly captures about 90% of the market share. Sorry VantageScore®, we’re just keeping it real with the research we’ve done.
History of both FICO® and VantageScore®
So, let’s take a quick look at the history timeline of FICO. Like many other dominant models, being first to market at the right time catapults you into a leadership position. It’s no different with FICO. In 1958, the Fair Isaac Corp. created the first credit score model. This move was the first in a long series of ‘grading’ consumer’s financial worthiness to obtaining credit, home loans, etc. Then in 1981, Fair Isaac Corp. created a scoring model made specifically for credit agencies. Fast forward to 1989 and the first generation of the FICO score was released for “general purpose.” Around this time, property managers and landlords started evaluating applicant’s FICO score during leasing decisions.
Here’s the kicker. The three major credit reporting agencies (Experian, Equifax, and TransUnion) have to literally pay Fair Isaac Corp. to license their scoring model – ouch! But, hey – we live in America and Donald Trump may be the next President of the United States. Anything is possible! So, the three credit reporting agencies scratched their heads (simultaneously), called each other up on a Skype video conference, and decided to band together to create the VantageScore® for their own use. Yes, their very own scoring algorithm! So, let’s take a quick at the history of the VantageScore® too:
- VantageScore was launched in March 2006. They wanted to be different from FICO, naturally, so the score range was 501 to 990 (versus FICO’s 300 to 850).
- Fast forward to October 2010 and VantageScore 2.0 was launched. The same scoring model was used with improved predictive performance.
- In late 2013, VantageScore 3.0 was introduced and the scoring system changed to mimic the FICO of 350-to-850 range.
Adoption of VantageScore®
Over 5,000 landlords across America using VerticalRent are using the VantageScore® to make leasing decisions every single day, yet the FICO® score remains the de facto standard for major lenders nationwide. According to FICO’s website, their scoring model is used by more than 90 percent of the largest lenders. But, according to VantageScore’s website, their score is used by:
- 5 of the Top 5 Mortgage Lenders
- 6 of the Top 10 Auto Lenders
- 8 of the Top 10 credit card issuers
- 7 of the Top 10 major financial institutions
That’s pretty impressive to me. It looks like VantageScore® is “coming up” in the world of credit scores. Both scores, in my opinion, are an effective means to evaluating an applicant’s financial ability to pay rent on-time and in-full every month. The point of this blog article is not to split hairs or take a position on what scoring model is better or worse. I honestly think that both models are effective and can be used to make a leasing decision. After all, VerticalRent® offers both the VantageScore® and FICO® score on a full credit report to customers. Refer to our pricing page to see how upgrading to Ultimate Edition gives you the option of viewing either scoring model.
Since VantageScore® is still considered by most to be the “underdog” and I have a soft spot for underdogs, I want to outline the purported benefits of VantageScore® available to Basic, Premium, and Professional Edition subscribers of VerticalRent. Again, I am not taking the position that VantageScore is better than FICO. Both are good scoring models. The only difference from a tenant screening perspective within VerticalRent is that you can run an instant credit report with the FICO® score on applicants. If you don’t care about the convenience of running “instant” credit checks, you can always invite an applicant to share their credit report with VantageScore®. We give you the choice. Choice is freedom in our eyes.
So, what are the purported benefits of VantageScore® 3.0? Let’s take a look:
- Highly predictive scoring model in that more granular data is used
- Highly consistent due to a unique and patented characteristic leveling process
- Includes up to 35 million previously unscoreable consumers like college students with very little credit history
- Accounts for changes in consumer behavior
- Simple for landlords and property managers to understand
- Score is based on post-recession data, making it more accurate
Check out this data sheet about VantageScore 3.0 for yourself. It’s safe to say that both scoring models work well for the tenant screening industry. The main difference is that Ultimate Edition subscribers can pull an instant credit report with the FICO® score.