FICO, which stands for Fair Isaac Corporation, is a credit scoring system that is widely used by financial institutions, including banks, credit unions, and other lenders. The FICO score is a numerical representation of an individual’s creditworthiness, based on their credit history and other financial data. The score ranges from 300 to 850, with higher scores indicating better creditworthiness.
FICO has developed several versions of its credit scoring model over the years, with the latest being FICO 10. However, many banks and lenders still rely on older versions, such as FICO 8 and FICO 9.
FICO 8 was introduced in 2009 as an improvement over the previous version, FICO 7. It takes into account an individual’s payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. FICO 8 also includes a new feature called Score Simulator, which helps individuals see how certain financial decisions may affect their credit score.
FICO 9 was introduced in 2014 as an improvement over FICO 8. It was designed to be more predictive of an individual’s creditworthiness, especially for those with limited credit histories or who have had past credit problems. FICO 9 uses a more sophisticated algorithm that takes into account things like rental payment history and medical debt, and it also ignores paid collections accounts.
So, which version of FICO do banks use? The answer is, it depends. Banks and other lenders are not required to use a particular version of the FICO scoring model, and they may use different versions depending on their specific needs and preferences.
However, FICO 8 is the most widely used version of the FICO scoring model. According to a 2018 report by FICO, 90% of all consumer lending decisions in the United States use the FICO score, and of those, 80% use FICO 8.
Why do banks and lenders continue to use FICO 8? There are a few reasons. First, FICO 8 is well-established and has been widely used for over a decade. It is familiar to lenders and borrowers alike, and its use has become an industry standard.
Second, FICO 8 is highly predictive of an individual’s creditworthiness. It takes into account a wide range of factors and has been shown to be highly accurate in predicting the likelihood of default or delinquency.
Finally, FICO 8 is easy to understand and interpret. The score ranges from 300 to 850, and lenders can quickly determine an individual’s creditworthiness based on their score. This simplicity is important for lenders, who often need to make quick lending decisions based on limited information.
That being said, some lenders may choose to use FICO 9 or other versions of the FICO scoring model. For example, FICO 9’s focus on medical debt and paid collections accounts may be appealing to lenders who want to be more forgiving of individuals who have had past credit problems.
In addition, some lenders may use their own proprietary scoring models, which may incorporate elements of the FICO scoring model or be based on other factors entirely. For example, some lenders may use alternative data sources, such as social media or utility bill payments, to determine an individual’s creditworthiness.
In conclusion, while FICO 8 is the most widely used version of the FICO scoring model, banks and lenders may use different versions or even their own proprietary scoring models. The specific version used will depend on the lender’s needs and preferences, as well as the individual’s credit history and financial situation. Regardless of which version of the FICO scoring model is used, having a good credit score
