FICO 5 and FICO 8: What is the difference?

FICO Score 5 and FICO Score 8: Overview

The credit score of the borrower is more than one. Each of us may have dozens or hundreds of credit scores, depending on the rating company chosen by the lender. Most lenders look at the borrower’s FICO (formerly Fair Isaac Corporation) score, but each borrower even has multiple FICO scores. FICO Score 8 is the most common, especially for credit card companies, but FICO Score 5 may be popular with car lenders and mortgage providers.

The different versions exist because FICO has regularly updated its calculation method during its 25-year history. Each new version will be released to the market and available to all lenders, but each lender decides whether and when to upgrade to the latest version.

Key points

  • FICO 5 is an alternative to FICO 8, which is common in auto loans and mortgages.
  • FICO 8 was launched in 2009 and is the eighth version of the FICO credit score.
  • Money lenders rely on industry-specific FICO rather than the basic version.

FICO score 5

FICO 5 is an alternative to FICO 8, which is common in auto loans and mortgages. In particular, FICO 5 has a wide range of representatives in the mortgage industry. The information in the borrower FICO 5 comes entirely from the credit reporting agency Equifax. Information from Experian includes FICO Score 2. For TransUnion, it is FICO Score 4. All three are used for mortgage loans. In contrast, FICO 8 uses information from all three credit reporting agencies.

One reason mortgage providers, especially banks, will rely on FICO 5 or FICO 4 instead of FICO 8 (or even the newer FICO 9 and/or FICO 10 Suite) is that earlier versions were less tolerant of unpaid collection accounts. Low, especially for medical accounts. Mortgage loans are very large loans, and mortgage lenders tend to be more cautious about them.

FICO score 8

FICO 8 is the eighth version of the FICO credit score. According to FICO, the system is “consistent with previous versions”, but “has several unique features” that make FICO 8 “more predictive” than previous versions. FICO 8 was launched in 2009.

Like all previous FICO scoring systems, FICO 8 attempts to convey how individual borrowers can interact with debt responsibly and effectively. Those who pay their bills on time, keep a low credit card balance and only open new accounts for targeted purchases tend to score higher.

Conversely, the lower scores are attributable to those who often default, are over-leveraged, or are reckless in credit decisions. It also completely ignores receiving accounts whose original balance is less than $100.

New features in FICO 8 include increased sensitivity to high-utilization credit cards-which means that low credit card balances on active cards can more positively affect borrowers’ ratings. FICO 8 also handles isolated late payments more wisely than previous versions. FICO said: “If the late payment is an isolated incident and other accounts are in good standing, 8 points are more forgiving.”

FICO 8 also divides consumers into more categories to provide better risk statistics. The main purpose of this change is to prevent borrowers with little or no credit history from being rated on the same curve as borrowers with good credit history.

The credit score of the borrower is more than one. Each may have dozens or hundreds of credit scores, depending on the rating company chosen by the lender.

Main difference

FICO 5 relies entirely on data from the credit reporting agency Equifax, while FICO 8 uses data from all three top credit reporting agencies: TransUnion, Experian, and Equifax. FICO 8 is more popular than FICO 5, especially for credit card companies. This is partly because FICO 8 is more sensitive to large balances on credit cards that are close to the credit card limit. Repeated late payment is also more difficult than FICO 5.

However, FICO 5 is more likely to be used by mortgage and auto loan institutions because it has less tolerance for unpaid collection accounts than FICO 8, especially medical accounts, while FICO 8 lends itself to large amounts of money. become more and more important.

General FICO and industry specific FICO

There is another difference between normal or “base” FICO scores and industry-specific FICO scores. The basic version, such as FICO 8, “is designed to predict the possibility of not paying any credit obligations as agreed in the future.” Industry-specific FICO scores single out certain types of credit obligations, such as car loans or mortgages.

There are multiple versions of FICO 5, including one each for mortgage, car, and credit card. Money lenders rely on industry-specific FICO rather than the basic version. If consumers apply for a car loan, then their FICO 5 car score may be more important than their base FICO 8 or FICO 5.

.

READ ALSO:   How is my credit score calculated?
Share your love