By Carla Fried | American Express Credit Intel Freelance Contributor
5 Min Read | June 14, 2021 in Credit Score
The first FICO scoring model was introduced more than 30 years ago and has been continually refined ever since.
The versions all differ in small ways.
Paying your bills on time and using a small portion of your available credit card limits are usually the keys to building a solid credit score across every version of the FICO scoring models.
Much as a smartphone or computer software upgrade is designed to improve performance, the system used to calculate your FICO credit score is periodically tweaked. The first FICO credit score rolled out in 1989, and over the years FICO has released new versions from time to time that slightly change the formula used to compute your three-digit credit score. FICO Score 8 – the eighth major revision of the credit score – is the most widely used by businesses.
FICO scores are the most popular credit score that businesses rely on when they want to get a sense of whether someone is a good “risk” to pay back borrowed money. That makes getting up to speed on the most widely used version of its scoring system worthwhile. The more you know about the FICO 8 scoring model, the more control you will have in building or maintaining an excellent credit score.
While the data scientists at FICO roll out new versions every few years, businesses are not required to upgrade to the latest version. The FICO 8 score was launched in 2009. Since then, FICO 9 and FICO 10 have hit the market. But for many businesses, the algorithm used for FICO 8 captures the key factors they want to know about, so they stick with it.
Consequently, when lenders check your FICO credit score, whether based on credit report data from Equifax, Experian, or TransUnion, they will likely use the FICO 8 scoring model. FICO 8 scores range between 300 and 850. A FICO score of at least 700 is considered a good score.
There are also industry-specific versions of credit scores that businesses use. For example, the FICO Bankcard Score 8 is the most widely used score when you apply for a new credit card or a credit-limit increase.1 It’s very similar to the base FICO 8 score but gives some extra weighting to your track record for handling credit card accounts.
Here are four important ways that FICO Score 8 differs from previous versions:
The popularity of the FICO 8 scoring system comes with one important caveat: It is not the score that mortgage lenders typically use when you apply for a home loan. Given that a home loan is often for a very big chunk of money, lenders are typically more cautious in assessing a mortgage application. They like to stick with earlier versions of FICO scoring algorithms because those older models take a more conservative approach in assessing risk. When a mortgage lender pulls your Experian FICO score, it typically will be based on FICO Score 2. Your Equifax FICO credit score for a mortgage will be based on the FICO Score 5 model. TransUnion uses FICO Score 4.3
It’s important to know that with each new version of the FICO scoring model, the changes really are more tweaks than major shifts. A new version tends to refine the weighting or importance of a few factors with the underlying goal of giving businesses the best possible estimate of whether you’re a good bet to pay back your debts or keep current with your credit card payments.
Sometimes changes are made because the business world gets better at understanding key differences between different types of debt. For example, medical debt has become an increasing reality for many families, given rising out-of-pocket medical expenses. Before FICO Score 9, if unpaid medical debt was sent to collections, it had the same negative impact as a debt collection for nonessential spending. But spending on medical care is different than overspending on travel and entertainment. So with FICO Score 9, introduced in 2014, FICO credit scores ignore when unpaid medical debt is sent to a collection agency.4
The computer model used to calculate your FICO credit score is periodically revised. Businesses that check credit scores can use whichever model they prefer; they’re not required to upgrade to the latest version. The most widely used FICO score is the FICO Score 8, introduced more than a decade ago. Knowing what matters most for a FICO 8 score can help you build or maintain a solid FICO credit score.