Which FICO Score Do Most Lenders Use?

You’ve been denied the loan, and you’re left wondering why. You’ve checked your credit score, and it’s decent—or so you think. But what you might not realize is that not all credit scores are created equal. The truth is, the FICO score that most lenders use is not necessarily the one you’ve been monitoring.

The FICO 8 Score: When it comes to lending decisions, the most widely used FICO score is the FICO 8. Launched in 2009, FICO 8 remains the industry standard for most lenders, including credit card issuers, auto lenders, and even some mortgage lenders. But why FICO 8?

The FICO 8 score is designed to be more sensitive to high credit card usage. If you tend to max out your credit cards, FICO 8 will penalize you more heavily than some other scores. On the flip side, if you have minor collections under $100, FICO 8 tends to ignore them, unlike older versions of FICO.

But there’s a twist. Mortgage lenders often have a different preference. Many still rely on older versions of FICO scores—specifically FICO 2, 4, and 5. These scores are used in tandem when assessing your mortgage application, pulling data from Equifax, TransUnion, and Experian respectively. This tri-score approach is intended to provide a more comprehensive picture of your creditworthiness.

Why do mortgage lenders stick with these older versions? It’s all about risk management. The older FICO models are considered more conservative, focusing on long-term credit behavior rather than recent changes in your credit history. This makes them more reliable in the eyes of mortgage lenders who are typically risk-averse.

Auto lenders, on the other hand, often use FICO Auto Scores. These scores are tailored specifically for the auto industry, giving more weight to your history with auto loans. If you’ve consistently paid off car loans in the past, this score will reflect that positively, even if your overall FICO score isn’t stellar.

FICO Bankcard Scores are another specialized version, often used by credit card issuers. These scores focus more on your history with revolving credit, making them more predictive of how you’ll manage a new credit card.

It’s also worth mentioning that FICO has continued to evolve with newer versions like FICO 9 and FICO 10, each introducing different changes. FICO 9, for example, is more lenient on medical debt and gives less weight to unpaid collections that have been settled. However, despite these improvements, FICO 8 remains the go-to for most lenders.

So, how can you prepare? The best approach is to check multiple versions of your FICO score, especially if you’re planning to apply for a mortgage. Many credit monitoring services now offer access to various FICO scores, allowing you to see what lenders see.

But here’s the catch: not all lenders use FICO scores at all. Some rely on VantageScore, a credit scoring model developed by the three major credit bureaus—Equifax, Experian, and TransUnion. VantageScore has its own versions, with VantageScore 3.0 and 4.0 being the most common. While VantageScore and FICO scores often correlate, they have different algorithms and may produce different results.

In summary, knowing your FICO 8 score is crucial, but it’s not the whole picture. Depending on the type of credit you’re seeking, lenders may use different FICO versions or even an entirely different scoring model like VantageScore. The key is to be informed and prepared by checking your credit across multiple scoring models.

To truly master the art of credit scoring, you need to understand which score matters for which type of credit. This knowledge not only helps you strategize better but also increases your chances of approval.

Now, let’s dive deeper into each type of FICO score, its usage, and how it impacts your lending prospects.

FICO 8 in Depth: FICO 8, being the most widely used, deserves special attention. The key differentiator with FICO 8 is its increased sensitivity to high credit card balances. For instance, if your credit card balance is close to your credit limit, FICO 8 will lower your score more than previous versions might have. This is because FICO 8 is designed to better predict the likelihood of default, and high credit utilization is a strong indicator of risk.

Another critical aspect of FICO 8 is how it handles collections. Unlike older models, FICO 8 ignores collections accounts with original balances under $100. This means if you have a small, unpaid library fine or a minor medical bill, it won’t hurt your FICO 8 score. However, this leniency doesn’t extend to larger collections, which can still have a significant negative impact.

Mortgage Lenders’ Preference: When it comes to mortgages, lenders are usually more conservative. This is why they often stick with older versions like FICO 2, 4, and 5. These versions are considered more stable and are better at predicting long-term credit behavior, which is crucial for mortgage lending. Each of these scores corresponds to a different credit bureau: FICO 2 for Experian, FICO 4 for TransUnion, and FICO 5 for Equifax.

The mortgage industry’s preference for these older scores also stems from their focus on the “middle score” approach. When you apply for a mortgage, lenders typically pull all three FICO scores and then use the middle score for their decision-making process. This method reduces the impact of any anomalies or errors in one particular credit report.

Auto Lenders and FICO Auto Scores: Auto lenders have a unique perspective on creditworthiness. They focus heavily on your history with auto loans and leases. That’s why they often use FICO Auto Scores, which are tailored to predict the likelihood of an auto loan default. FICO Auto Scores range from 250 to 900, providing a broader range than standard FICO scores, which typically range from 300 to 850.

If you’ve consistently paid off your car loans on time, your FICO Auto Score could be significantly higher than your regular FICO score. This specialized score can be the difference between securing a favorable loan rate and being denied altogether.

FICO Bankcard Scores: Credit card issuers also have their own tailored score: the FICO Bankcard Score. This score places more emphasis on your credit card history, including factors like your credit limit, balance, and payment history. It’s designed to predict how you’ll handle a new credit card account, so if you’ve had issues with revolving credit in the past, this score might be lower than your general FICO score.

The Evolution: FICO 9 and FICO 10: As credit scoring continues to evolve, newer versions like FICO 9 and FICO 10 have been introduced. FICO 9, for example, offers more leniency towards medical debt and unpaid collections that have been settled. FICO 10, which is even more recent, introduces trended data, meaning it considers your credit behavior over time rather than just a snapshot.

However, despite these advancements, FICO 8 remains the most commonly used score by lenders. It strikes a balance between accuracy and familiarity, making it the preferred choice for many.

Understanding VantageScore: It’s also important to recognize that not all lenders use FICO scores. Some use VantageScore, which was developed as a joint venture by the three major credit bureaus. VantageScore has its own scoring models, with VantageScore 3.0 and 4.0 being the most widely used. These scores also range from 300 to 850 but differ in how they weigh certain factors.

For example, VantageScore tends to be more forgiving of short credit histories and might give you a higher score if you’ve recently opened a new credit account. However, it’s less forgiving when it comes to late payments, which can drop your score significantly.

Key Takeaways:

1. Know your FICO 8 score: It’s the most commonly used by lenders, especially for credit cards and auto loans.
2. Check multiple scores: If you’re applying for a mortgage, look at your FICO 2, 4, and 5 scores. These are what most mortgage lenders will use.
3. Understand industry-specific scores: Auto lenders use FICO Auto Scores, and credit card issuers use FICO Bankcard Scores.
4. Be aware of VantageScore: Some lenders use VantageScore instead of FICO. Understanding both can give you a fuller picture of your creditworthiness.
5. Stay updated with newer FICO versions: While FICO 8 is still king, FICO 9 and 10 are gaining traction, especially with their more nuanced approach to debt and credit history.

In conclusion, the credit score game is more complex than just knowing your number. Different lenders use different versions of FICO, and sometimes even entirely different scoring models. By understanding which score is used by which type of lender, you can better prepare and optimize your chances of approval.