What You Should Know About FICO® Scoring

Posted by Laine Smith on 5/24/15 12:08 PM

Topics: Economy

FICO® Scores have been in use for over 25 years, helping lenders of all kinds make informed credit granting decisions. A lot has changed since FICO® scores were introduced in 1989; lender credit-granting requirements, data reporting, and consumer use and demand of credit are always evolving, so FICO® scoring methods must keep up the pace to ensure their model is an accurate predictor of credit risk.

FICO_Scoring

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Why You Have Different Credit Scores

In mortgage lending, your credit score is calculated by a combination of scores from the three national credit bureaus: TransUnion, Experian and Equifax. Lenders use your median score of the three, known as a FICO Score, for credit representation.

When FICO® redevelops a scoring formula, it is released to the market. Each lender chooses if and when it will upgrade to the latest model. For instance, in mortgage lending decisions, Experian, Equifax and TransUnion all use different FICO® scoring models (FICO Score 2, 5 and 4) to assess credit scores.

With each updated FICO® scoring model, lenders are able to better predict risk and reflect consumer credit behavior.

How FICO Scores Vary in Different Industries

There are also industry-specific FICO® scoring models, which include the base method of FICO® Scores but are optimized for a certain credit type, such as auto or home loans and credit cards. Industry-specific FICO Scores are designed to assess the likelihood that a borrower will pay on a specific type of credit obligation.

Experian

Equifax

TransUnion

Most widely used version

FICO® Score 8

FICO® Score 8

FICO® Score 8

Versions used in auto lending

FICO® Auto Score 8

FICO® Auto Score 2

FICO® Auto Score 8

FICO® Auto Score 5

FICO® Auto Score 8

FICO® Auto Score 4 

Versions used in credit card decisions

FICO® Bankcard Score 8

FICO® Bankcard Score 2

FICO® Score 3

FICO® Bankcard Score 8

FICO® Bankcard Score 5

FICO® Bankcard Score 8

FICO® Bankcard Score 4

Versions used in mortgage lending

FICO® Score 2

FICO® Score 5

FICO® Score 4

Information courtesy of www.myfico.com

These scoring methods provide lenders a refined credit risk assessment tailored to the credit product their consumer is seeking. For example, auto lenders may use FICO® Auto Score instead of base FICO® Scores.

Regardless of updated or industry-specific scoring models, the keys to maintaining a healthy credit score remain the same:

  • Make payments on time
  • Keep revolving credit balances low
  • Open new credit accounts only as needed

For more information about credit score and home financing, download our free Mortgage 101 Handbook, a great reference for first-time homebuyers.

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