Did you know there are multiple Fico score models?
Most people don’t – I didn’t either. But these different models allow lenders to make smarter decisions when granting loans or credit.
Fico Scores were first introduced in 1989 – more than 25 years ago. As you can imagine, a lot has changed since then. Consumer behavior is different. The way in which lenders grant credit has also changed.
Fico Score 8 is most widely used by lenders and has been adopted by the three major credit bureaus: TransUnion, Experian and Equifax.
What Does Fico Score 8 Mean?
Fico Score 8 was introduced in 2009. Previous scoring models included 2, 3, 4 and 5. According to Fico, the new version “is consistent with previous versions,” but it has “several unique features” that make it a more “predictive score” than previous versions.
Fico 8 takes a closer look at new borrowers, subprime borrowers and borrowers with only a few open accounts who are actively seeking credit. Lenders need a little more help with risk prediction when working with these types of borrowers.
Borrowers with different types of credit accounts will have higher scores than those that only have a few types of accounts. Borrowers also receive additional points for paying loan balances below the original amount. When a loan balance is near or above the original amount, borrowers lose points under this score model.
Fico explains the differences between Score 8 and previous versions. Here’s what’s different:
Isolated Late Payments Aren’t as Damaging
With Score 8, isolated late payments aren’t as damaging to your credit score. If you have one late payment and the rest of your accounts are in good standing, your score won’t take as big of a hit.
On the other hand, if you’re behind on multiple or all of your accounts, you will see a bigger dip in your score than with previous versions.
High Credit Card Usage Will Lower Your Score
All versions of the Fico score considered high credit card usage to be reflective of higher risk. But Score 8 is a little less forgiving in this department. If your credit cards have high balances compared to their limits, your score will likely be lower under Score 8 compared to previous versions.
Authorized Credit Card Use is Less Beneficial
Authorized user credit card accounts are also included in Fico Score 8, just as they are in all previous Fico Score versions. This allows users to benefit from the “shared management” of credit cards.
But Fico Score 8 also limits the benefit of “tradeline renting.” Tradeline renting is a so-called credit repair tactic that entices consumers to be added to a stranger’s credit card to reduce their credit risk to lenders.
Small Collections are Ignored
Under Fico Score 8, small-dollar collection amounts – less than $100 – are ignored.
Things That Haven’t Changed with Fico 8
While there are several changes with Fico 8, there are also many things that remain the same as with previous score models.
- The credit range is still 300-850. High scores are still better.
- Authorized user accounts are still included.
- The score will be based on information from the three major credit bureaus.
- Fico 8 still uses the same categories to calculate your score:
- 10% mix of credit
- 10% recent applications
- 15% credit age
- 30% credit usage
- 35% payment history
Essentially, if you pay your bills on time, keep your account balances low and only open new accounts when necessary, you should be able to maintain a good or excellent score.
What about Fico 9 and Fico Bankcard 8 Score?
Fico released Fico 9 in 2015, and this version offers a few more changes:
- Less of a penalty for medical collections
- Ignores paid collections
Fico also has an Auto Score specifically for auto lenders and a Bankcard 8 score for credit card lenders.
The exact metrics used to calculate your Bankcard 8 score are unknown, but Fico focuses specifically on your behavior with credit cards. Here are some things we do know about the Bankcard 8 score.
- The range is different: 250-900. The traditional Fico score range is 300-850.
- Many consumers say their Bankcard 8 score is very similar to their regular Fico score.
- Both the base and Bankcard 8 score look at similar credit-related behaviors.
While Fico 8 is the most recent and – supposedly – most used scoring model, many lenders still use previous Fico models. The mortgage industry, for example, still favors the Fico 5 scoring model.
Previous scoring models were less forgiving when it came to unpaid collections, particularly medical collections. Because mortgages are very large loans, lenders are more cautious and want to take these factors into consideration.
If you’re like most consumers, you probably want to learn more about your Fico scores. Here’s the good news: you can view 19 of them by purchasing a Fico Score 3B Report from myfico.com. The 3B report includes all three bureaus, but you can also purchase a report for a single bureau (Experian, Equifax or TransUnion).