Read 5 minutes December 21, 2022
FICO Score 8 is the most popular version of the FICO scoring model currently used by businesses to measure borrower risk.
The original FICO scoring model was introduced more than 30 years ago and has been continuously improved since then.
There are slight differences between each version.
Paying your bills on time and using a small portion of your available credit card limits are key to building a good credit score in all FICO scoring models.
As most smartphone or computer software updates are designed to improve performance, the system used to calculate FICO credit scores is regularly adjusted. The first FICO credit score was released in 1989, and over the years, FICO has periodically released new versions that slightly change the formula used to calculate the three-digit credit score. FICO Score 8 (the eighth major revision of the credit score) is the score most widely used by businesses.
The FICO score is the most popular credit score that businesses rely on when determining if someone is a good “risk” to repay a loan. This makes it very useful to have quick access to the most widely used scoring system. The more you know about the FICO 8 scoring model, the more control you will have in building or maintaining a good credit score.
FICO 8 brings the best options for businesses.
Because FICO’s data scientists release new versions every few years, businesses don’t have to upgrade to the latest version. The FICO 8 score was launched in 2009. Since then, FICO 9 and FICO 10 have been released. But for many businesses, the algorithm used in FICO 8 contains the key information they need to understand, so they stick with it.
Therefore, when lenders check your FICO credit score, they may use the FICO 8 scoring model based on credit report information from Equifax, Experian, or TransUnion. FICO 8 scores range from 300 to 850. A FICO score of at least 700 is considered a good score.
Businesses also use industry-specific versions of credit scores. For example, a FICO Score of 8 is the most common score used when applying for a new credit card or increasing your credit line. A FICO Score of 1 is very similar to a FICO Score of 8, but takes into account your record of handling credit card bills.
Here are four key differences between FICO Score 8 and previous versions.
- Late payments require a more sophisticated approach. A key factor in calculating your FICO score is your on-time payment history, which accounts for 35% of your score. The FICO 8 scoring model makes changes to how late payments are handled on each account. If it’s a one-time lapse, the scoring system will be more lenient than previous versions. But chronic late payments can further reduce your FICO 8 score.
- The closer a card is to its credit limit, the more important it is. One of the most important factors affecting your credit score is your “credit utilization,” which makes up 30% of your credit score. This measures how much of your available credit you actually use. Generally speaking, keeping your bills under 30% of your total credit limit won’t hurt your credit score. But you want to avoid getting so close that you can’t raise your credit limit on any one card. FICO 8 tweaks the formula to assign a higher score than previous versions if the balance on a card is close to its credit limit .
- Small group fights no longer count. With the introduction of FICO 8, the scoring system no longer focuses on accounts with balances below $100 that are sent to collection agencies.
- The “authorized user” strategy is effectively dead. The benefit of being an authorized user is that if the account owner has a good FICO score, the authorized user can help build a good credit score for that account. A legitimate use for authorized users came when a family member added a child or other relative to a card account. A less legitimate use is to mark a stranger as an authorized user on a card. This is an increasingly popular strategy used by credit repair businesses to help people rebuild their credit scores. With FICO 8, data scientists have developed a way to identify this unnecessary use and exclude it from score calculations.
Applying for a mortgage? FICO 8 is not a score.
The FICO 8 scoring system is popular with one important caveat: It’s not the score lenders typically use when applying for a home loan. Lenders are generally cautious when evaluating mortgage applications because home loans often require a large down payment. These older models tend to stick with the earlier FICO scoring algorithms because they take a more conservative approach to assessing risk. When mortgage lenders pull your Experian FICO score, it’s usually based on a FICO Score of 2. Your Equifax FICO mortgage credit score is based on a FICO Score of 5. TransUnion uses a FICO Score of 4.3
FICO score changes are usually small.
It’s worth noting that the changes to each new FICO scoring model are more of a tweak than a major shift. The new versions tend to clarify some of the importance or significance of the basic goal, which is to have businesses place as much weight as possible on whether you can pay your debts or are making payments on your credit cards.
As the business world has gained a better understanding of the key differences between different types of debt, changes are sometimes made. Medical debt, for example, has become a growing reality for many out-of-pocket households. Prior to the launch of FICO Score 9, sending unpaid medical debt to collection agencies had the same negative impact as debt for unnecessary expenses. But medical expenses are different than overspending on travel and entertainment . So, with the launch of FICO Score 9 in 2014, FICO credit scores will ignore unpaid medical debt when sent to collection agencies.
The computer model used to calculate FICO credit scores is updated periodically. Businesses that verify credit scores can use any model they want; they are not required to upgrade to the latest version. The most commonly used FICO score is FICO Score 8, which was introduced ten years ago. Understanding the most important factors of the FICO 8 score can help you establish or maintain your FICO credit score.
Kara Fried is a freelance writer who has focused on personal finance throughout her career. Her work has appeared in The New York Times , Money , CNBC.com, and Consumer Reports , among other outlets.
All CreditIntel content is written by freelance writers and is commissioned and paid for by American Express.
