Since the original FICO score was first introduction in 1989, the Fair Isaac Company (the creator of FICO scores) has re-developed its scoring formula several times to make sure it remains a robust predictor of risk, as consumer credit behaviors kept changing.
Why should NextGen Fico Scores matter to you?
Since the FICO 08 employs a number of changes in the weight it gives to different factors, your financial behavior may need to change accordingly or your score may be impacted.
Here are the main key differences between the FICO 08 and previous generation of FICO:
- High credit card usage
FICO 8 score is more sensitive to highly utilized credit cards. If your credit report shows a high balance close to the card’s limit, your score will likely lose more points than it would have previously. You may want to consider lowering your credit card balance, preferably below 35% of your credit limit.
- Authorized users
FICO8 minimizes score inflation caused by the controversial practice of “Credit Piggybacking” as an authorized user on the seasoned credit account of a stranger.
Credit repair companies used to exploit the loophole in the previous FICO version. Consumers paid thousands of dollars to get added as an authorized user to the credit card of a total stranger with a stellar credit history. This would raise their score and misrepresent their credit risk to lenders.
The FICO8 requires consumers to have legitimate relationship to the primary card holder such as parents, husband and wife or kids in order for their FICO score to benefit.
- Isolated late payments
NextGen Fico Scores qre more lenient toward a rare missed payment. A “one-time miss-happening in terms of delinquency” doesn’t penalize the score as much compared to previous models.
On the other hand, if the late payment is reoccurring – it will have an increased impact on your credit score.
This means that while a single “30 Days Late” will have a small effect on your score, being “90 Days Late” or having multiple “30 Days Late” on your report will take more points off your score than it would have previously.
- Small-balance collections accounts
FICO 8 score ignores small-dollar “nuisance” collection accounts in which the original balance was less than $100.
What remains the same?
Many things remain unchanged. The score range remains the same – 300 to 850, rate shopping inquiry treatment, minimum scoring criteria and score reason codes (top factors that lowered the credit score) are unchanged. So are the five main factors included in the original FICO score formula.
How do the credit agencies call it?
Each of the 3 major credit bureaus has re-branded its own variations of the NextGen Fico Scores:
- Equifax calls its version of FICO 08 – Pinnacle.
- Experian call its version – FICO Advanced Risk Score.
- TransUnion uses the name – Precision.
Additionally, many lenders have their own tweaks to the FICO 8 scoring model, according to what business they’re in (mortgage, car loan etc.), so the score that is actually used to evaluate your credit worthiness may vary from organization to organization.