The FICO score is the credit score most widely used by lenders. FICO (formerly known as Fair Isaac) updated its credit scoring model in January 2009 to better predict the likelihood that consumers will repay their credit bills. The new credit score called FICO 08 has been adopted by two of the three major credit bureaus - TransUnion and Equifax. There is no word on when the third credit bureau, Experian, will adopt FICO 08.
Changes to FICO 08
FICO 08 will take a closer look at certain groups of borrowers who lenders need more help with risk prediction. This includes subprime borrowers, new borrowers and those with few open accounts, and borrowers who are actively looking for credit.
Under FICO 08, borrowers with different types of credit accounts - credit cards, mortgages, and auto loans - will have higher scores than those with only one or two types of accounts. Borrowers will also receive points for paying loan balances well below the original amount. A borrower whose loan balance is close to or above the original amount will lose credit score points under FICO 08.
If you have a single serious delinquency, that is, one account that's gone 90 days past due or more, your FICO 08 credit score won't hurt as much if you have several other accounts that are in good standing. On the other hand, if you're behind on several accounts, you'll see a more significant drop in credit your credit score.
Having a high credit utilization hurt your credit score more than if you used only a small portion of their available credit will have a boost to their FICO 08 credit scores.
Borrowers should have more active good-standing accounts than closed accounts.
What Remains the Same With FICO 08
Other than what's been mentioned above, FICO 08 remains the same as with previous versions of the scoring model.
- FICO scores will still range from 300 to 850 with higher scores being better.
- FICO 08 continues to look at the same categories to calculate your credit score:
35% payment history
30% credit utilization
15% credit age
10% recent applications
10% mix of credit - Authorized user accounts will continue to be included in FICO 08 credit scores, but the new model will make a distinction between legitimate authorized user accounts and those that were purchased for credit improvement purposes only.
- Your FICO 08 score will continue to be based on information in your credit reports from the three major credit bureaus.
Purchasing Your FICO 08
Though FICO 08 is available to many lenders who use Equifax and TransUnion, it is not yet available for consumer purchase. There's no word from FICO on when it will be available. You can still purchase the previous version of your Equifax and TransUnion FICO scores from myFICO.com.
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