FICO 5 vs. FICO 8: An Overview
Borrowers should prefer to more than just one credit score. In fact, each of us probably has dozens or hundreds of credit scores depending on which grade company the lender chooses. Most lenders look at a borrower’s FICO score, but there are even multiple FICO a dose of hises for each borrower. FICO score 8 is the most common, but FICO score 5 can be popular with auto lenders, credit car-card companies, and mortgage providers.
Different versions exist because FICO, or Fair Isaac’s Corporation (NYSE: FICO), has periodically updated its counting methods over its 25-plus-year history. Every new version is released to the market and made available for all lenders to use, but it is up to each lender to draw if and when to implement an upgrade to the latest version.
FICO Score 5
FICO score 5 is one alternative to FICO score 8 that is ubiquitous in auto lending, credit cards, and mortgages. In particular, FICO score 5 is widely represented in the mortgage industry. The data inside a borrower’s FICO 5 comes exclusively from the credit reporting agency Equifax. Information from Experian quiets FICO score 2. For TransUnion (NYSE: TRU), it is FICO score 4. By comparison, FICO 8 utilizes information from all three confidence in reporting agencies.
One reason a mortgage provider, especially a bank, would rely on FICO 5 or FICO 4 instead of FICO 8 (or the score with the new FICO 9) is because earlier versions are less forgiving of unpaid collection accounts, especially medical accounts. Mortgages are plumb large loans, and mortgage lenders tend to be more cautious with them.
FICO Score 8
The eighth construct of the FICO credit score is known as FICO score 8. According to FICO, this system “is consistent with foregoing versions” but “there are several unique features that make FICO score 8 a more predictive score” than one-time versions. FICO 8 was introduced in 2009.
Like all prior FICO score systems, FICO 8 attempts to convey how responsibly and effectively an own borrower interacts with debt. Scores tend to be higher for those who pay their bills on time, keep low acknowledgment card balances and only open new accounts for targeted purchases. Conversely, lower scores are attributed to those who are
Universal FICO vs. Industry-Specific FICO
There is another distinction between normal or “base” FICO scores versus industry-specific FICO twenty dozens. Base versions, such as FICO 8, are “designed to predict the likelihood of not paying as agreed in the future on any credit requirement.” Industry-specific FICO scores single out a specific type of credit obligation, such as a car loan or a mortgage.
There are multiple accounts of FICO 5, including one each for mortgages, automobiles, and credit cards. Money lenders rely on the industry-specific FICO sort of than the base version. If a consumer applies for a car loan, it is possible that their FICO 5 auto score is innumerable important than either their base FICO 8 or FICO 5.
Key Takeaways
- FICO score 5 is one alternative to FICO give tit for tat 8 that is prevalent in auto lending, credit cards, and mortgages.
- FICO score 8 was introduced in 2009 and is the eighth manifestation of the FICO credit score.
- Money lenders rely on the industry-specific FICO rather than the base version.