The FICO 8 Credit Scoring Formula

How FICO 8 Will Impact Your Credit Score

Credit score gauge
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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 the three major credit bureaus - Equifax, Experian, and TransUnion. In a February 2015 press release, FICO says the FICO 8 is the "most widely used credit score in America."

Consumers can check their FICO 8 score at myFICO.com.

Changes to FICO 8

FICO 8 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 8, 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 8.

If you have an isolated late payment while all your other accounts are still on good standing, your  credit score won't drop as much under FICO 8. 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 your available credit.

Borrowers should have more active good-standing accounts than closed accounts.

"Nuisance" debt collections, which are those with an original amount under than $100, won't be considered.

Note that these collections still appear on your credit report and can affect your approval, however, the FICO 8 won't penalize you for these small collections.

What Remains the Same With FICO 8

Other than what's been mentioned above, FICO 8 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 8 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 8 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 8 score will continue to be based on information in your credit reports from the three major credit bureaus.

Other FICO Versions

FICO has released FICO 9 in early 2015. FICO 9 ignores paid collections and penalizes consumers less for medical collections. This is a big win for consumers, especially considering the CFPB's findings that consumer credit scores unfairly suffered from medical collections.

Previous versions of the FICO score include FICO Score 2, 3, 4, and 5.

FICO also offers a Bankcard score for credit card issuers and an Auto Score for auto lenders. You can view 19 of your FICO scores by purchasing the FICO Score 3B Report for $60 through myFICO.com.