What Does FICO Score 8 Mean?

While the data scientists at FICO roll out new versions every few years, businesses are not required to upgrade to the latest version. The FICO 8 score was launched in 2009.¹ Since then, FICO 9 and FICO 10 have hit the market. But for many businesses, the algorithm used for FICO 8 captures the key factors they want to know about, so they stick with it.

 
Consequently, when lenders check your FICO credit score, whether based on credit report data from Equifax, Experian, or TransUnion, they will likely use the FICO 8 scoring model. FICO 8 scores range between 300 and 850.² A FICO score of at least 700 is considered a good score.³

There are also industry-specific versions of credit scores that businesses use. For example, the FICO Bankcard Score 8 is the most widely used score when you apply for a new credit card or a credit limit increase. It’s very similar to the base FICO 8 score but gives some extra weighting to your track record for handling credit card accounts.²

Here are four important ways that FICO Score 8 differs from previous versions:

• It takes a more nuanced approach to late payments. A major factor in calculating your FICO score is your track record for making on-time payments, which accounts for 35% of your score.¹ The FICO 8 scoring model introduced changes to how it treats late payments on a single account. If it’s a one-time slipup, the scoring system is more lenient than previous versions. But chronically late payments cause your FICO 8 score to drop more.
• Nearing a credit limit on a single card became more important. One of the most important factors affecting your credit score is your “credit utilization ratio,” which counts for 30% of your credit score. This measures how much of your total available credit you’re actually using. As a general rule, keeping your total balances below 30% of your total available credit will not hurt your credit score.¹ But you also want to avoid getting near to maxing out any single card. FICO 8 tweaked the formula to ding a score more than previous versions if a balance on a single card is near its credit limit.²
• Small collections squabbles no longer count. With the introduction of FICO 8, the scoring system stopped paying attention to any accounts sent to a collection agency that had a balance below $100.⁵
• Gaming the “authorized user” strategy was effectively stopped. The advantage of becoming an authorized user is that if the account holder has a strong FICO score, it will help the authorized user on that account build a strong credit score. A smart and legitimate use of authorized users is when a family member adds a child or other relative to a card account. A less legitimate use is letting a stranger tag along as an authorized user on a card. This had become an increasingly popular tactic that credit repair businesses used to help people rebuild their credit scores.⁵ With FICO 8, the data scientists came up with a way to spot this unintended usage and exclude it from calculating scores.⁶

The popularity of the FICO 8 scoring system comes with one important caveat: It is not the score that mortgage lenders typically use when you apply for a home loan. Given that a home loan is often for a very big chunk of money, lenders are typically more cautious in assessing a mortgage application. They like to stick with earlier versions of FICO scoring algorithms because those older models take a more conservative approach in assessing risk. When a mortgage lender pulls your Experian FICO score, it typically will be based on FICO Score 2. Your Equifax FICO credit score for a mortgage will be based on the FICO Score 5 model. TransUnion uses FICO Score 4.²

It’s important to know that with each new version of the FICO scoring model, the changes really are more tweaks than major shifts. A new version tends to refine the weighting or importance of a few factors with the underlying goal of giving businesses the best possible estimate of whether you’re a good bet to pay back your debts or keep current with your credit card payments.

 
Sometimes changes are made because the business world gets better at understanding key differences between different types of debt. For example, medical debt has become an increasing reality for many families, given rising out-of-pocket medical expenses. Before FICO Score 9, if unpaid medical debt was sent to collections, it had the same negative impact as a debt collection for nonessential spending. But spending on medical care is different from overspending on travel and entertainment. So with FICO Score 9, introduced in 2014,¹ FICO credit scores ignore when unpaid medical debt is sent to a collection agency.²