If you’ve been working on staying on top of your credit score, you’ve probably done your research and found that FICO scores are commonly used in lending decisions.
The FICO score is a three-digit number between 300 and 850 that gives lenders and credit card issuers an idea of your creditworthiness. If you’ve been a responsible borrower – with few or no missed payments, low overall debt, and a long, varied credit history – you’re likely to get a good to excellent score of 661 or higher. If your credit history is problematic, your score may fall below 661 or even fall into the “bad” range of 579 and below. Your FICO score is based on the information on your credit report – primarily on your credit card and installment loan account.
Over 90 percent of the top US lenders use FICO scores. However, there is not one single version. There are actually multiple options, which means you also have many different FICO scores.
Read on to learn about the different versions of FICO and how they are used by lenders.
Why are there multiple versions of the FICO score?
Over 30 years ago, FICO introduced the first overall credit bureau ratings, helping to expand access to credit in a reliable, responsible and objective manner. Needless to say, a lot has changed since FICO scores were first introduced, from the role of consumer credit in this US economy, to the evolution of consumer credit practices and behavior, to improved modeling tools and new data.
Not to mention, different types of lenders base their decisions on varying degrees of the five factors that make up the overall FICO scoring plan. What’s important to a mortgage lender may not be as important to a credit card issuer, while your car loan bank may be interested in some other aspect of your financial behavior.
This has resulted in multiple versions of FICO scoring being supported in the market to suit the different needs of lenders and consumers. Each lender determines which version it will use when evaluating a loan request.
“Very similar to the iPhone analogy, when Apple releases a new version of the iPhone, you can say, “I need this, and these new features are very important to me,” whereas I would say, “I don’t really need this, I happy with my current version,” explains Tom Quinn, vice president of FICO. “So, Apple has several versions that are used by consumers and are supported. It’s the same with FICO Scores – we have lenders using different versions of the score depending on their needs.”
Let’s dive into these versions and see which lenders use them.
FICO 8
FICO 8 is the most widely used version of the FICO score across three credit bureaus – Experian, Equifax and TransUnion. Whether you’re applying for a personal or student loan or a retail credit card, knowing your FICO 8 score can help you assess your chances of getting approved.
All versions of the FICO score are based on the following categories of information:
Although FICO 8 is the most widely used, newer versions of the score are available. For example, many lenders have switched to FICO 9. Unlike older versions, FICO 9 ignores paid fees from third parties, pays less attention to unpaid medical fees and factors in rental history when reported.
The latest version, FICO 10T, is the first version to also take credit bureau trend data into account. This gives creditors a more predictable score as it takes into account a deeper assessment of how you have managed your accounts over the past 24 months, such as your balances, how much you have paid on your latest credit card statements over time, and whether you have been re-enlarging, maintaining or reduce your debt over time.
Knowing these differences can help you be better prepared when applying for a loan. For example, if a lender uses FICO 9, you may not need to worry about this paid account on your credit report.
Industry ratings
In addition to the basic versions, there are industry-specific FICO ratings designed to help lenders better assess risk for specific types of loan products. They work as a kind of “overlay” on your base FICO score, Quinn says, refining the risk prediction for a given loan product, such as a car loan.
Let’s take a look at the types of FICO scores that different lenders use.
Credit Card Issuers: FICO Bankcard Scores
When it comes to credit card approval decisions, issuers often use a Bankcard version of the FICO rating, especially FICO 8. This version of the FICO rating focuses on predicting your credit risk on a credit card.
Another notable difference is in the range of scores, with baseline FICO scores ranging from 300 to 850 points, while industry FICO scores have a wider range of 250 to 900 points.
Auto Lenders: FICO Auto Scores
For auto loans, lenders will likely consider industry-specific FICO Auto scores, with FICO Auto Score 8 being the most used version. This variation on your score is calculated by giving more weight to car loan risk behavior.
“This industry scorecard can display characteristics related to how you have managed previous auto loans,” explains Quinn.
However, even if you haven’t had a car loan before, the score will evaluate your other credit records for certain risk patterns associated with getting a car loan.
Mortgage Lenders: Earlier FICO Scores
A mortgage is one of the most significant loan commitments a consumer can take on. For this reason, lenders typically receive all three credit reports and FICO scores for each applicant.
FICO 2, FICO 4 and FICO 5, which are based on data from Experian, TransUnion and Equifax respectively, are commonly used in mortgage lending. Typically, lenders make their decision based on an average score from these three.
To prepare your loan for a mortgage, be sure to keep track of your credit reports and scores, only apply for a new loan when you need it, and work to reduce your credit card debt. And paying all your bills on time is always critical to keeping your credit in good shape.
What FICO score should I check?
You don’t always have to be aware of every credit score you have. It is usually enough to stay at the top of your FICO 8 score to have a good idea of your credit health.
However, when you buy a loan, such as an auto loan and especially a mortgage, you can get a better idea of what scoring options — like those commonly used for mortgages, car loans, or credit cards — your potential lender will see when checking your credit.
In addition, many lenders and credit card issuers participate in the FICO Score Open Access Program, which provides consumers with free access to their FICO scores.
Quinn also suggests checking out the user forums hosted on myFICO where you can search for specific topics such as “Which lenders use FICO Score 9?” and find a thread where users discuss their understanding of what ratings and versions of ratings their banks and lenders use. This way you will be able to find a lender who uses your highest score before applying. Please note, however, that this information is not verified, although it may help you get useful information.
bottom line
There are several versions of the FICO score, and each lender determines which version they will use when evaluating a loan application. While it may not be possible to stay up to date with every change in your credit score, it is important to maintain good credit habits.
“Regardless of your situation, it is always important to pay bills on time, use available credit responsibly, and only apply for credit when absolutely necessary,” says Quinn.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
