FICO 8: What It Is, How It Works, Types, and Examples

FICO 8 is the most widely used version of the standard model used to score consumers on their use of credit. The FICO score gets its name from the Fair Isaac Corporation (now called FICO), the California-based data analytics firm that in 1989 created the system for rating the use of credit and debt by individual consumers. FICO 8 was introduced in 2009.

Every consumer who uses credit, or hopes to get credit, has a credit score that rates their credit risk. Whenever an application is made to obtain credit, the lender checks that person’s credit rating with any of the three major credit bureaus—Experian, Equifax, and TransUnion—that compile individual payment histories. All three use the FICO scoring system, which rates each consumer along a scale from 300 to 850, with ranges marked “poor,” “fair,” “good,” “very good,” and “exceptional” on the scale. In general, FICO’s base scoring system weights various elements of a borrower’s credit history to generate a prediction about how likely they are to make their payments on time and avoid defaulting on a loan.

FICO 8 followed FICO 5 and made key adjustments to some of its calculation metrics. FICO 8 has an increased sensitivity toward high credit card balances but reduces the damage done by occasional late payments. It also ignores records of debt collection proceedings for balances under $100.

FICO 8 also added safeguards against an obscure practice called “tradeline renting.” This was a loophole in previous versions of the FICO system. For a fee, a consumer with a poor credit score could be added as an authorized user to an existing revolving credit account. Over time, this would indicate an apparent pattern of repayment and boost the person’s credit score. FICO intended the adjustments to the formula to reflect then-current best practices for predicting consumer credit risk.

Earlier FICO Scores are also still in use. Mortgage lenders use FICO 2, FICO 4, or FICO 5, for example, depending on which credit bureau they approach for information. This is due to a Federal House Finance Agency (FHFA) mandate that these scores be used for mortgages approved by Freddie Mac or Fannie Mae.

FICO introduced its base credit scoring system in 1989. It has five main components, each with its own weight:

Most updates to FICO’s base score are adjustments in the calculations used for each of these categories. When the company makes such adjustments, it releases new versions to the lending marketplace.

Currently, myFICO.com says that FICO 10 Suite scores will be made “generally available to lenders before the end of 2020.” As of this writing, Feb. 3, 2021, Investopedia could not confirm whether the scores had yet been rolled out.

There have been two successors to FICO 8: FICO 9, deployed in 2014 to lenders and in 2016 to consumers, and FICO 10 Suite, consisting of FICO 10 and FICO 10T, announced in January 2020. However, major credit bureaus and lenders, not FICO, decide whether to adopt new versions and the timeline for doing so, which is why FICO 8 is currently still the most popular score.

As a result, a number of FICO score versions coexist. To further complicate matters, FICO also offers a set of tailored, industry-specific scores for auto lenders, mortgage lenders, and bank card issuers, increasing the number of available scores.

FICO Score 9 featured adjustments to the treatment of medical collection accounts, increased sensitivity to rental history, and a more forgiving approach to fully paid third-party collections. FICO 10T takes trended data into account. That is, it indicates an individual’s payment history over the past 24 months or longer in order to give a more accurate picture of the person’s current financial situation.

FICO 8 credit scores range from 300 to 850, with varying categories from “poor” to “exceptional.”

FICO 8 is less forgiving of high credit card balances but reduces the impact of occasional late payments. It also ignores records of debt collection proceedings for balances under $100.

No, some lenders may choose to use other FICO versions or industry-specific variations depending on their preferences and priorities.

Yes, FICO offers tailored scores for different industries, including auto lending, mortgage lending, and credit card issuing.