FICO O8 – Fair Isaac Corporation Determining Creditworthiness

What is FICO 08?

FICO O8 is a credit scoring model from Fair Isaac Corporation used by lenders to know the creditworthiness of a potential borrower. It determines the interest rate borrowers are to be charged and how worthy potential borrowers can obtain credit. The FICO O8 version credit scoring model was released in 2009.FICO O8

 

What Affects Your FICO08 Credit Scores?

FICO 08 dit scores are given based on the information in your consumer credit reports. Your credit reports contain information that covers how often you make payments on time as well as how many credit accounts you have open. Now this information can directly affect your FICO Score 08 credit scores.

Here are the things that go into your FICO scores.

Payment History (35%) 

Your credit payment history is a big factor when you want to your FICO scores. Lenders want to know if you are in the habit of paying your bill on time.

Amounts Owed (30%) 

This is the amount you owe on credit accounts, like loans and credit cards as well as the percentage of your available credit that you are using which is known as your credit use rate

Length of Credit History (15%) 

This accounts for how long you have had your oldest and your newest accounts. The average age of all your accounts are also considered and how long it’s been since you’ve used certain accounts.

Credit Mix (10%) 

FICO scores also take into consideration your mix of different credit accounts, even though it is not a key factor. These can include credit card accounts, mortgage loans, and auto loans.

New Credit (10%) 

This refers to new credit inquiries and recently opened accounts that can alter FICO scores.

How is FICO 08 Different from Previous Versions?

Even though the underlying foundation of FICO 08 is consistent with previous versions, there are some unique features that make up the FICO score 8.

High Credit Card Usage

FICO O8 is more sensitive to highly utilized credit cards. Note, however, that all FICO score versions also consider high credit card utilization to be reflective of higher risk. Thus if a credit report shows a high balance close to the card’s limit, FICO 08 will likely be more impacted than a previous score version.

Isolated Late Payments

Where a lender reports to the credit bureau that you were at least 30 days late with your payment, it may likely result in a loss of points within all FICO score versions. Where the late payment is an isolated event and other accounts are in good standing.

But where the credit report shows numerous late payments, the reverse is true and FICO score 8 will most likely lose more points, unlike previous FICO score versions.

Authorized User of Credit Card

In order to protect lenders and honest consumers, a FICO score of 8 substantially reduces any benefit of “tradeline renting”. This is a credit repair practice that entices consumers into being added to a stranger’s credit account.

Small Balance Collections Accounts

FICO 08 ignores small-dollar “nuisance” collection accounts in which the original balance was less than $100.

Alternatives to FICO 08

FICO score 9 is a newer version of FICO’s base scoring model which has been introduced. Lenders also have the option of using a competing scoring model known as VantageScore.

FICO score 9 was released in August of 2014 and it comes with two big changes as compared to score 8. FICO score 9 model ignores collection agency accounts that have been paid off and penalize consumers less for unpaid medical collection agency accounts.

The VantageScore model was jointly developed by Equifax, Experian, and TransUnion and came on board in 2006.

VantageScore Solutions LLC. is jointly owned by the three credit companies. It holds the rights to the model and updates the model. The current version of VantageScore as of August 2020 is VantageScore 4.0.

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