Although it would seem obvious, most customers are unaware that there is more than one possible credit score. Several credit scores exist, all of which are used by various creditors in evaluating credit applications. The majority of lending institutions look at the borrower's FICO score. Even people's FICO scores might be very different from one another. We look at two of them: the FICO Score 5 and the FICO Score 8. Lenders will look at both of these factors when determining your creditworthiness. On the other hand, FICO 5 is often used in the mortgage lending business, and FICO 8 is mostly utilised by credit card issuers. Equifax uses the FICO 5 scoring model. However, the other two main credit bureaus utilise the FICO 8 scoring model.

Higher scores are awarded to those who are in the habit of making on-time and consistent payments to their creditors, maintain an adequate number of open accounts, have a lengthy credit history, and maintain a healthy balance of their existing and new credit obligations. People who are late with their payments have accounts in collection, don't have adequate credit, or have a more recent credit history are more likely to have lower credit ratings. Because FICO has frequently altered its calculating techniques throughout its more than 25-year existence, various versions are available. Every new version introduced to the market is made accessible to all lenders so that they may utilise it; however, it is up to the individual lenders to decide if and when they will implement an update to the most recent version.

FICO Score 8

2009 saw the debut of the FICO 8 rating system. According to FICO, the technology is compatible with previous iterations of the score and functions reliably with them. FICO 8, on the other hand, comes with a few novel characteristics that make it "a more predictive score" than earlier software versions. It is the score that credit card issuers use the vast majority of the time. Therefore, when you apply for a credit card, the firm will typically pull a FICO 8, which it may get from any of the three main credit reporting agencies. The FICO 8 score, like all of the other FICO scores, reflects how responsibly and successfully you engage with debt:

• One of the new features of FICO 8 is a heightened emphasis on the significance of credit cards with heavy use. This indicates that a borrower's credit score might be positively impacted favourably by having low balances on current credit cards. The score also analyses isolated late payments more judiciously than previous editions, which means that FICO 8 may be merciful if the late payment you made the year before was an isolated incident and all of your other accounts are in excellent standing.
• In addition, FICO 8 classifies customers into a greater number of subgroups to provide a more accurate statistical picture of risk. This modification was made to prevent borrowers with a limited or nonexistent credit history from being evaluated based on the same curve as those with extensive credit histories.

Key Differences

Let's go over some of the distinctions that we discussed in the last section:

• Because it is less forgiving of delinquent collection accounts, especially medical bills, FICO 5 is more likely to be employed by mortgage lenders (and, in certain situations, organisations that give car loans). This is because FICO 5 is less tolerant of late medical bills. The FICO 8 score, on the other hand, is given greater consideration when significant amounts of money are being loaned.
• The FICO Score 8 is more popular and is used more often than the FICO Score 5, particularly in organisations that deal with credit cards. This is partly due to the fact that FICO 8 is particularly sensitive to high credit card amounts that are kept dangerously near the limit of the card. It is also harder than FICO 5 on repeat offenders regarding late payments.

Special Considerations

In addition to this difference, conventional or base FICO ratings and industry-specific FICO scores are not the same. Standard versions, such as FICO 8, are "intended to anticipate the possibility of not paying as promised in the future on any credit commitment." [Citation needed] FICO ratings that are specialised to a certain industry highlight a particular category of credit obligation, such as a mortgage or an auto loan.

There are many iterations of the FICO 5 score, one of which is tailored specifically to mortgages, another to vehicles, and another to credit cards. The industry-specific FICO score is the one that lenders depend on rather than the basic version. A consumer's FICO 5 auto score may be more relevant to their ability to get a vehicle loan than their basic FICO 8 or FICO 5 score.