This thread is focused on capturing what we know about FICO Score 8 in one thread.
Brief FICO background
FICO - Fair Issac and Company - claims Score 8 is the most widely used credit scoring system. Lenders use scores to measure and understand credit risk. Credit risk is the likelihood of default.
FICO is a global, publically owned company with over 4000 employees. Banking and insurance customers are 88% of FICO’s $1billion sales revenue. Consumer purchased scores are a fraction of its business.
Score 8 is one of 28 credit score models (Score 2, 3, 4, 8, 9; Bankcard 2, 3, 4, 5, 8, 9; Auto Score 2, 4, 5, 8, 9; Score 10 and 10T debut in 2020). FICO began in 1956. Its current scoring system launched in 1989.
FICO scoring and these forums
Forum users know or will quickly learn that:
- we know GENERALLY how scoring works,
- we know A LOT about how certain aspects
- we do not know EXACTLY how all of FICO scoring works.
FICO's models are proprietary, meaning private. FICO knows exactly how their systems work. These forums share what others have learned and decoded about scoring.
As of April of 2020, there are ~ 300,000 users and over 4 million posts here. With so many new users, many similar questions are asked again, and again.
Not all answers apply to all models. Instead of cramming everything about all 28 models into one thread, this thread focuses on FICO Score 8 (FS8). FS8 launched in 2009. We learn more about its secrets each day.
FS8, like other scores, measures credit risk. Credit risk indicates how likely someone will default on a credit obligation by 90 days in the following 24 months. FS8 scores are draws from credit report data from each respective bureau: Experian, Equifax and TransUnion.
Credit scores are connected with approvals, but are often not the only factor. A hard pull inquiry (more here) analyzes 1) your score, then 2) your credit report, then 3), your reported credit liabilities to determine approvals, interest rates terms and starting credit lines. Credit scores matter, but are not the sole reason that applications are approved or declined. Lenders, not FICO, ask for data not contained in your CR data to consider, as well, such as income and housing expenses.
FICO Score 8 key differences
FS8 was designed to be more sensitive to high revolving utilization than earlier versions. It excludes collection accounts of less than $100. It is more forgiving of an occasional late payment of 30 days or more compared to earlier versions; all other accounts must be in good standing. FS8 reduces score disparity among the 3 bureaus. Earlier versions were customized to each specific bureau. (Version 9 supposedly has even less disparity.)
Like other FICO models, 5 categories or "ingredients" are evaluated. Once processed by FICO algorithms, they result in a rating and numerical score. FS8 values are:
Rating Score range
Exceptional (or excellent) 800 - 850
Very good 740 - 799
Good 670 - 739
Fair 580 - 669
Poor 300 - 579
The ingredients that are drawn from your credit report, and their approximate weighting of your score are:
- Payment history 35%
- Amount of debt 30%
- Length of history 15%
- New credit 10%
- Credit mix 10%
Scorecard basics
Scorecards are a complex matter. Many posts are scattered across these forums that mention scorecards. What is important to know about scorecards is that they impact how your specific score responds to new information in your credit report.
Scorecards, or "scorecard modules" are math based systems created by FICO using their own technology called INFORM. Scorecards change the weighting and sensitivity of information in your credit report. FS8 scores use complex math to calculate a credit risk score. The underlying math includes Lorenz curves, Gini coefficients, normalized log Bernoulli Likelihood, multicollinearity testing. The use of complex math and formulas are why we do not know exactly how FS8 works.
FS8 uses 8 "clean" and 4 "dirty" scorecards. Scorecard are assigned by a process called segmentation. Segmentation includes how "thin or thick" (amount of activity) or "clean or dirty" (the presence of derogatory information like late payments or public records), age of oldest account, and recency of new accounts in your credit report. Within each category are various scoring factors, which determine score ranges and weighting among scorecards.
So, how does scoring work in FICO Score 8?
Again, we do not know all aspects with precision. There are a number of things that have been learned. Many thanks to Reddit user rtanaka6, who captured many FS8 highlights in a Reddit post. They are listed below with modifications and additions.
NOTE: This first post is dynamic. It will be revised as new, more accurate and more complete information is learned. Credit given to posters who share their expertise.
PAYMENT HISTORY
This is the most important category. It accounts for appx 35% of score. The algorithm considers late payments, COs, Collections, BK, etc.. 100% payment history and 0 derotagory marks are most ideal. Even one isolated 30 day late may result in penalty points, despite remaining in a clean scorecard. Minor penalties can remain for 2 years. Major derogatory marks affect score for 7 years. There is evidence that multiple late 30s or worse sets you into a dirty scorecard. New revolving accounts may earn points at 3, 6, and 9 months of age if no negative payment events occur per @Birdman7. Installment loans may earn points over time with no negative payment history, in addition to achieving utilization thresholds.
UTILIZATION - individual account and aggregate totals
- Aggregate utilization breakpoints occur at 9%, 29%, 49%, 69%, 89%
- Breakpoints occur at ≤ whole numbers, e.g. 9%, (confirmed by @Anonymous)
- Negative impacts for individual card utilization occur at 29% (sometimes 49% depending on segmentation/scorecards/buckets)
- Number of cards reporting a balance may impact score, independent of utilization
- Individual utilization (usually but not always same as statement balance) below 29% before utilization penalty points are charged
- Installment loans: aggregate utilization of all open installment loans (current total balances divided by the total original loan amounts) below 9% per @SouthJamaica
Number of Accounts Reporting Balance
- Increasing from 4 accounts reportng to more than 5 may results in a 5 point drop
Factors:
1) Number of accounts reporting: 3, AND
2) % of open accounts (some data suggests this is less than 40% (eg. 2 reporting balances with 5 cards or 3 reporting with 8 cards)
Aside from utilization, charge cards do count toward one's number of accounts with balances.
AAoA - Average Age of Accounts
- Breakpoints occur yearly
- 2 year AAoA = +5-10 points (0 to 2 year increase = +5-15 points)
- every +1 year thereafter AAoA = +5-10 points annual increase
- Maximum AAoA for scoring is reached close to 6 years and fully at 92 months (7Y 8M)
AoOA - Age of Oldest Account
- Used in FICO clean (no derogatory marks such as late payments, BKs or public records within the credit report) profiles.
- While not a FICO 8 scoring factor, AoOA is used to segment and establish scorecard assignment.
AoYA or AoYRA - Age of Youngest (Revolving) account
- Used in FICO clean profiles.
- May cause a 25 point hit if your AoYA drops from over 12 months to 0 months due to new credit
- May cause a >25 point hit if your AoYA drops from over 2.5 years to 0 months due to new credit
- The maximum penalty for AoYA is within the first 12 months; after 13 months, penalty points are recovered.
- Penalty points may be earned back over the course of the 12 month period, e.g. at 3 months, 6 months, etc.
Total Number of Accounts
- Used in FICO clean profiles.
- "Thick" vs "Thin" profiles; "credit mix" also matters: having more than 1 account type.
- 3 revolving credit card (some data suggests 5) PLUS 1 installment loan
- So, 4 (min) and 6 locks a profile as "thick"
- A score of 850 has two types: 15+ year history and 3 credit cards, younger profiles and 5+ credit cards
Latest Open Account
- "Too many accounts recently opened" reason code
- New account penalty breakpoints: How many new accounts within {0, 30, 60, 90} days of most recent new account.
- "Time since most recent account opening is {too short}".
- New account penalty breakpoints: 3-6 months; after 6 months this penalty should go away.
Inquiries
- Inquiries may count for 0-20 FICO points, scorecard dependent (20 point charge against young/thin scorecards per @Anonymous)
- Penalty points are reduced until the 1 year mark when they are no longer 'scorable'; maximum penalty time is 1 year / 12 months
- Inquiries will remain on your report for a 25 months.
- For credit files with fewer than 3 cards reporting, the 1st 3 cards won't hurt as bad because FICO gets a boost for your first 3 cards.
- After the first 3 cards, any new cards opened are charged penalty points
- Note: additional cards may increase score if the additional credit lines change overall utilization breakpoints
More on inquiries in general on this thread.
CREDIT MIX
1. Number of accounts is a sementation factor. (Thin/Thick)
Data suggests that if you have 5-6 accounts on your CR, you are placed in a thick scorecard.
2. Mix - data suggests that you are under penalty unless you have at least 3 revolvers and 1 installment loan on record, open or closed. Upon acquiring you first cards and loan, these penalties are reduced and points are awarded. The amount is unclear as it occurs upon reporting , which changes many scoring factors. When a new account reports, you may have a scorecard reassignment, if you have no revolver under 12 months of age and one reports. This typically results in a score drop commonly referred to as the "new account" penalty, and penalty points may increase with aging hits. It can be reduced by increased total credit line if utilization thresholds are crossed. It can also be reduced by the "too few cards" penalty being reduced or by an award for your first loan mix points.
3. Open/Closed timeframes Closed accounts are "supposed to remain on your CR for 10 years", but appears to not hold true in all cases. @SouthJamaica reports accounts being dropped after a year being closed. Therefore, a closed loan appears to satisfy the credit mix requirement for a loan. As mentioed in Amounts Owed, having an open loan with remaing balance of less than 9% can add 15-30 points.
Derogatory marks and late payments
- Writing goodwill letters to have late payments removed are the best recourse
- Note: that process may take months, depending on creditor
- Max Penalty: 7 years
- Derogatory marks result in scorecard changes from clean to dirty (@Anonymous )
Category Optimal FICO Score requirements
| Utilization | Less than 9.0000% |
| Number of Accounts Reporting Balance | Up to Three [AND] 33% to 40% of total accounts; values believed to vary by bureau |
| AAoA | Max bonus at 7 year 8 month |
| Oldest account(AoOA) | Scorecard segmenter for clean profiles, not a scoring factor; estimate is 10-15 years |
| Youngest account (AoYA) | Remove score penalty after 12+ months (90% confidence) |
| Total Number of Accounts | Scorecard segmenter for clean profiles, not a scoring factor. 5+ credit cards, 1 installment loan |
| Latest Open Account | Score penalty if less than 90 days between apps; penalty removed after 6 months |
| Inquiries in Last Year | Zero. Score penalty removed after 1 year |
| Late payments | Zero. Score penalty removed after 7 years for major late payments |
Notes:
The Score 8 algorithm is slightly tweaked for each of the 3 bureaus; while scores are close, they are not the same. @Anonymous
Finally, I want to credit several users (in no specific order) who have directly and indirectly provided the inspiration for this post, and whose expertise is deeply appreciated:
@Anonymous @Anonymous @Thomas_Thumb @Anonymous @Revelate @SouthJamaica @HeavenOhio @Remedios
