Definition and Examples of FICO Score 8 Classification
FICO Score 8 is a credit scoring model from Fair Isaac Corporation (FICO) that is widely used by lenders to help them determine the potential borrowers’ ability to repay and the interest rate that should be charged. This version of the company’s base credit scoring model was released in 2009.
How Does FICO Score 8 Work?
FICO does not disclose its exact methodology for determining credit scores. However, similar to the previous version, FICO stated it assigns the following percentage weights to the five credit criteria used in Score 8:
– 35% for payment history: includes the payment record on all types of loans and the amounts due (and their number) in any delinquent accounts.
– 30% for credit utilization or amounts owed: includes factors like the percentage of total available credit across all credit cards used by the borrower and the amount owed on an installment loan.
– 15% for credit age or length of credit history: includes the age of the oldest credit account and the age of the most recent account, as well as the average age of all accounts.
– 10% for new credit or recent applications: includes the number of new accounts you have opened and the number of recent inquiries by lenders to review your credit reports or credit scores.
– 10% for credit mix: includes whether you have different types of credit accounts, divided into revolving (like credit cards and home equity lines of credit) and installment (like mortgages and student loans).
Scores range from 300 to 850, with higher scores being better. A score above 800 is considered exceptional. A score from 740 to 799 is very good. A score from 670 to 739 is good. A score from 580 to 669 is fair. A score below 579 is considered poor.
FICO and all three credit reporting agencies can provide your FICO Score 8, although it is typically offered as part of a credit monitoring and reporting service and/or identity theft protection for a monthly fee.
Alternatives to FICO Score 8
FICO Score 9 is a newer version of FICO’s base scoring model. Lenders may also use a competing scoring model called VantageScore.
FICO released FICO Score 9 in August 2014. There are two significant changes from Score 8: Model 9 ignores paid collection agency accounts and penalizes consumers less for unpaid medical collection agency accounts.
The VantageScore model was developed in collaboration between Equifax, Experian, and TransUnion and was released in 2006. VantageScore Solutions LLC, which is jointly owned by the three credit reporting companies, owns the intellectual property of the model and updates it regularly. The latest version as of August 2020 is VantageScore 4.0.
Source: https://www.thebalancemoney.com/the-fico-8-credit-scoring-formula-960453
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