What Is FICO 08?
FICO 08 is the most widely-used version of the standard model used to score consumers on their use of credit.
The FICO score gets its name from the Fair Isaac Corp., the California-based analytics firm that developed the system for rating the use of credit and debt by individual consumers. FICO 08 is a version of its model that was introduced in 2009, revising a system that was first widely introduced in 1989.
FICO 08 is also known as FICO 8 or FICO Score 8.
Understanding FICO 08
Every consumer who uses credit, or hopes to get credit, has a credit score that rates that person's history of paying off debts in a timely manner. Whenever an application is made to obtain credit, the lender checks the person's credit rating with any of several major credit bureaus that compile individual payment histories. All of those bureaus use the FICO scoring system.
The FICO system scores each consumer along a scale of 300 to 850, with a range starting at 300 meaning "very poor" and a range that tops out at 850 meaning "excellent."
Changes in FICO 08
FICO 08 made key adjustments to certain metrics used to calculate a credit score. The current version has an increased sensitivity toward high credit card balances but reduces the damage done by occasional late payments. It also ignores records of collections proceedings for balances under $100.
The new version also added safeguards against an obscure practice called tradeline renting. This was a loophole in previous versions of the FICO system. For a fee, a consumer with a poor credit score could be added as an authorized user to an existing revolving credit account. Over time, this would indicate an apparent pattern of repayment and boost the person's credit score.
FICO intends the adjustments to the formula to reflect current best practices for predicting consumer credit risk.
Other Versions of FICO
There have been successors to FICO 8, including FICO 9 in 2014 and FICO 10 in 2020. However, FICO 08 continues to be the most widely adopted version of FICO credit scoring. It is used by Experian, Equifax, and TransUnion, the three major U.S. credit bureaus.
- FICO 8 is an update to the standard credit scoring model that is now widely used by the major credit bureaus.
- Its scoring criteria is less forgiving of high credit card balances but reduces the impact of an occasional late payment.
- Depending on their priorities, some lenders use other versions or industry-customized versions of the FICO scoring system.
FICO introduced its base credit scoring system in 1989. When the company makes adjustments to its scores, it releases new versions to the lending marketplace. Major credit bureaus and lenders decide whether to adopt new versions and their timeline for doing so.
As a result, a number of FICO score versions co-exist. To further complicate matters, FICO offers a set of industry-specific scores for auto lenders, mortgage lenders, and bank card issuers.
In general, FICO’s base scoring system weights various elements of a borrower’s credit history to generate a prediction about how likely they are to make their payments on time and avoid defaulting on a loan.
The Basics of FICO
The consumer's payment history makes up 35% of the rating, while the total amount owed accounts for another 30%. The length of the borrower’s credit history accounts for 15%, while new lines of credit opened and the individual's current credit mix account for 10% each.
Most updates to FICO’s base score are adjustments in the calculations used for each of these categories.
Some of the adjustments made in FICO 08 make sense for one type of loans but not for other types. For example, mortgage lenders still tend to use FICO Score 5 because they are not as forgiving about even small unpaid collection accounts as the later version of FICO assumes.
Fair Isaac released FICO Score 9 in 2016, with adjustments to the treatment of medical collection accounts, increased sensitivity to rental history, and a more forgiving approach to fully paid third-party collections.
None of the major credit bureaus has adopted the new version to date, however. FICO 10 was released in early 2020. This latest version takes trended data into account. That is, it indicates the individual's payment history over the past 24 months in order to give a more accurate picture of the person's current financial situation.