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


FICO 8 is a widely used credit scoring model created by the Fair Isaac Corporation (now known as FICO) in 1989. It’s a crucial tool for evaluating consumers’ creditworthiness and is used by major credit bureaus. This article delves into what FICO 8 is, how it differs from earlier versions, and its impact on credit scoring. We’ll also touch on the existence of other FICO versions and their unique features. Understanding FICO 8 is essential for anyone seeking to manage their credit effectively.

What is FICO 8?

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.

Understanding FICO 8

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.

The basics of FICO

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

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit (10%)

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, 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.

Other versions of FICO

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.

Weigh the risks and benefits

Here is a list of the benefits and the drawbacks to consider.

  • FICO 8 provides a comprehensive assessment of your creditworthiness.
  • It encourages responsible credit card usage with its sensitivity to high balances.
  • Reduces the impact of occasional late payments.
  • Some lenders may use other FICO versions, affecting your credit evaluation.
  • FICO 8’s treatment of medical collection accounts may not be as forgiving.
  • It doesn’t consider trended data, unlike newer FICO versions.

Frequently asked questions

What is the range of FICO 8 credit scores?

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

How does FICO 8 differ from earlier versions?

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.

Do all lenders use FICO 8 for credit evaluations?

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

Are there industry-specific FICO scores?

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

Key takeaways

  • FICO 8 is a widely used credit scoring model that assesses credit risk on a scale from 300 to 850.
  • It focuses on payment history, amounts owed, length of credit history, credit mix, and new credit in its evaluation.
  • Newer versions of FICO, like FICO 10 Suite, have been introduced with specific enhancements.
  • Pros of FICO 8 include a comprehensive credit assessment and sensitivity to high credit card balances.
  • Cons include potential differences in credit evaluation by lenders and the exclusion of trended data.
View Article Sources
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  3. FICO Credit Scoring – Minority Business Development Agency
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  5. myFICO Reviews (2023) – Credit Monitoring Services – SuperMoney