What is the FICO 8 score? – Councilor Forbes

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You probably already know you have one credit score, but did you know you have more than one? However, the FICO Score 8 is the most common. It was introduced by the Fair Isaac Corporation (FICO) in 2009 as an improvement over previous versions. Here’s what you need to know about how FICO Score 8 works.

How the FICO 8 score works

All of your FICO scores are calculated the same way: FICO takes a credit report from one of three credit bureaus – Equifax, Experian, or TransUnion – and runs it through an algorithm. There are many general-purpose versions of your credit score, in addition to industry-specific versions for auto loans, credit cards, and mortgages.

How it’s calculated

Your FICO Score 8 is made up of these five elements:

  • Payment history (35%). The most important thing you can do to improve your credit score is make all of your payments on time. Even a single missed payment can damage your score.
  • Amounts due (30%). This refers to the amount you owe, both on loans and through your credit cards. Keeping your credit balances low compared to your credit limit (i.e. having a low credit utilization rate) will help your credit score.
  • Length of credit history (15%). Keeping old credit cards open can help you build a longer credit history, which creditors like to see.
  • New credit (10%). Avoid applying for new credit unless you really need it. New credit applications usually require a thorough credit check, which can drop your credit score between one and five points for up to a year.
  • Credit composition (10%). Showing that you can handle both installment loans and credit cards can help boost your credit score.

How it is used

Having a good credit rating can open many doors for you, especially when it comes to your finances. Here is how it can be used:

  • Apply for a loan or credit card: Most potential lenders will check your credit score and credit report as part of the approval process.
  • Get cheaper rates: Most lenders will charge you higher rates if your credit score is damaged. A good credit score can save you a lot of money, especially on a large loan like a mortgage.
  • Rental accommodation: Even if you are not considering taking out a mortgage, landlords can also check your credit score when you apply for a rental home.
  • Registration for public services: Often times, utility companies check your credit score when you sign up for the service. If you don’t have a good credit rating, they may ask you to put down a down payment.
  • To get a job: In some cases, a bad credit rating can even prevent you from getting certain jobs.

FICO Score 8 Scales

FICO scores range from 300 to 850. Here’s what those numbers mean, according to FICO.

FICO score 8 vs. FICO Score 9

FICO is continually refining its models with the goal of improving them, and the FICO Score 8 is not the most recent version. It is still the most widely used today, mainly because adopting the most recent credit score model is difficult for lenders plagued by bureaucratic inertia.

The FICO Score 9 is even newer and maybe better for you depending on your situation. It was released in 2014 (five years after the FICO 8 score), in part in response to how people were unfairly penalized for medical billing practices.

According to a Consumer Financial Protection Bureau report, these billing practices resulted in credit scores 10 to 22 points lower than they should have been. It might not seem like a big amount, but if you’re already on the sidelines for a lender’s threshold, it could get you unfairly refused or charged more than you should.

Here is a quick summary of the difference between the FICO 9 score and the FICO 8 score:

  • Reduces the impact of medical debt in collections: If you pay a medical bill that was referred to collections, it won’t hurt your FICO 9 score as much. And once paid, it will be removed from your report entirely. Normally it stays on your credit report for a long time, so this is a big help.
  • Includes rental history: Your landlord does not have to report your rent payments to the credit bureaus. But if they do, your FICO 9 score will include the information.

FICO score 8 vs. Previous FICO scoring models

Here’s what the FICO 8 score has changed from previous scoring models:

  • Reduces the impact of authorized users. Being listed as an authorized user on someone else’s account meant that their entire account history would also be copied to your credit report, which can be a good thing if they did. good credit and you are working to build your score. However, the FICO Score 8 reduces this impact.
  • Reduces the impact of infrequent payment delays. If you normally pay your bills on time but miss every Blue Moon, it won’t hurt your score as much with the FICO Score 8.
  • Increases the impact of frequent payment delays. On the other hand, if you are used to late payments, it is possible that your score drops even more with the FICO Score 8.
  • Increases the impact of high balance credit cards. Normally, using a large portion of your total available credit (on all credit cards) can hurt your score. The FICO Score 8, however, penalizes you more for it, even with individual cards. So you should also try to keep individual card balances low relative to their individual credit limits.
  • Ignore small accounts in collections. Accounts under $ 100 that are placed in collections do not count towards your FICO Score 8.

Increase your FICO® score instantly with Experian Boost

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

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