Just when you feel it is hard enough to understand your credit score, FICO, the most widely used and most well known credit scoring model has introduced a new credit scoring system, referred to as FICO 8. FICO, or Fair Isaac Corporation, is the company that analyzes your credit information to predict what is likely to happen with your financial accounts. FICO looks at the entire range of your credit information and uses it to create a score that will help lenders predict what kind of credit risk you may be and how likely it is that you will pay your bills on time.
Your FICO score is a number between 300 and 850. The higher your score the better your credit. Experts say that no one has a perfect score but any score above 760 will pretty much guarantee your chances of receiving the best credit opportunities available. First introduced the late 1980s, FICO had to keep up with the ever changing financial world and continue to evolve its scoring model to adapt to the times. Thus FICO 8 was introduced within the last 10 years to help lenders better predict borrower risk.
When explained by FICO experts, the newest version of this scoring model is more consumer friendly than models of the past. For example, FICO 8 is less concerned with including a calculation of your infrequent late payments but instead is more focused on your surmounting debt and accounts carrying a high balance for a lengthy period of time. Financial experts feel that a one time 30 day late payment is not an accurate reflection of your inability to pay and should not be given too much weight on your score. However multiple accounts with high balances could mean you are a step away from falling down a financial rabbit hole and be a sign that you are unable to keep up with paying your bills. FICO 8 gives more meaning to the negative notations on your report and will drop your score accordingly.
This scoring model does a better job of identifying consumer risk. Because FICO 8 is more sensitive to predicting credit risk, consumers with good credit practices should see an increase in their score, while consumers with poor credit practices may see a decrease in theirs. FICO claims that nearly 10,000 lenders are using their newest model to calculate credit scores and their goal is to have all lenders use this score as the older version become obsolete.