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FICO 5 vs FICO 8: Understanding Credit Scores

| Tedis Baboumian |

Imagine applying for a mortgage and your lender tells you your credit score isn’t high enough, but your credit card company claims it’s excellent. Confused? You’re not alone. Credit scores are pivotal in our financial lives but understanding them can be complex.

As we dive into the maze of scores, we will discuss the FICO 5 and FICO 8, the intricacies of credit scoring models, and the reasons behind varying scores across different bureaus. We will also unpack the enigma of credit scoring. Join us to demystify how these three-digit numbers can shape your financial journey.

FICO 5 vs FICO 8

To compare FICO 5 and FICO 8, we need to first understand that they are both different versions of the FICO score and may have slight variations in their calculations.

FICO 5, also known as Equifax Beacon 5.0, is commonly used by mortgage lenders to assess creditworthiness. FICO 5 goes beyond the typical scoring factors to include other information, such as your employment history, medical accounts, and residential history. The FICO 5 score comes exclusively from the credit reporting agency Equifax.

FICO 8, on the other hand, is the most widely used version of the FICO score and is used by lenders for general lending decisions, including auto lenders, credit card issuers and even personal loans. Notably, FICO 8 divides consumers into more categories to provide a better statistical representation of risk. The primary purpose of this change was to keep borrowers with little to no credit history from being graded on the same curve as those with robust credit histories.

The key differences between the two are that the FICO 5 is mainly used by mortgage lenders while the FICO 8 is mainly used by card companies and the FICO 5 is based off of the Equifax report while the FICO 8 is based of data from all three credit bureaus.

To get a clearer understanding of why there is a difference between your FICO 5 and FICO 8 scores, you may want to review your credit reports from Equifax, TransUnion, and Experian to see if there are any discrepancies or factors that are impacting your scores differently.

Credit Scoring Models

Like the different versions of popular operating systems such as Windows or Android, there are numerous scoring models available. These models, including popular ones like FICO Score and VantageScore, have unique formulas for calculating an individual’s scores. Because each scoring model places different weight on factors such as payment frequency, amounts owed, and other credit information, the same consumer could potentially have varying scores across different models, similarly to how the same app may perform differently on various versions of an operating system.

Credit scoring models like FICO Score and VantageScore hinge on data collated by the three major credit bureaus—Experian, Equifax, and TransUnion. These models serve to predict how likely an individual is to repay borrowed funds promptly compared to the rest of the consumer population. Additionally, some models have been tailor-made for specific industries or products, providing customized risk assessments for different lending scenarios such as for mortgage, auto loans, or credit cards.

What is a Vantage Score?

Introduced in 2006 by the collective efforts of the three credit bureaus, VantageScore emerged as strong competition to the FICO scoring system. This score assigns a numerical scale ranging from 300 to 850 to represent an individual’s creditworthiness.

VantageScore tends to include factors such as on-time payments, the proportion of card utilization, the diversity of credit accounts, and more. It’s noteworthy that this score can sometimes present up to 100 points higher than certain FICO scores, which can be a significant difference depending on the use of the score. Websites like Dovly often display a consumer’s VantageScore 3.0, which serves as a valuable financial health indicator and is used by some lenders and landlords as an alternative to traditional FICO scores.

What is a FICO Credit Score?

FICO, standing for the Fair Isaac Corporation, is synonymous with credit scoring in many financial contexts due to its widespread use among lenders. The FICO score ranges from 300 to 850. Originally established as the standard for creditworthiness evaluations, FICO scores have seen several updates such as FICO Score 8, reflecting changes in consumer spending patterns and credit behavior.

Industry-specific FICO® Scores

Industry-specific FICO® Scores serve a valuable purpose for both lenders and consumers, offering a detailed look into potential credit risk related to specific types of credit. Such scores are curated by the Fair Isaac Corporation, and they differ from the classic FICO scores, which fall within a range of 300-850. Instead, industry-specific scores have a broader range, set at 250-900.

The reason behind this tailored approach is that different types of credit carry unique risk behaviors. For instance, factors affecting a card account may vary significantly from what influences an auto loan.

Here is a quick rundown of what is available to lenders:

  • Industry-Specific Scores Provided to Lenders:
    • Experian: 16 FICO Scores
    • Equifax: 16 FICO Scores
    • TransUnion: 21 FICO Scores

How Credit Scores Are Calculated

Scores are calculated using a variety of factors, compiled by major credit reporting bureaus. Scoring models assess an individual’s creditworthiness by evaluating their payment history, the frequency of payments, the total amount of debt, credit charge-offs, and the number of cards or other credit accounts held.

Each of these factors is assigned a different weight within the scoring model formula. Though there is some consistency in the types of information they evaluate, each credit scoring model may interpret and weigh the details differently, which can result in varying scores across different models.

VantageScore groups credit information into six main categories each with different influence:

  • Payment history: extremely influential
  • Age and type of credit: highly influential
  • Percentage of credit limit used: highly influential
  • Total balances and debt: moderately influential
  • Recent credit behavior and inquiries: less influential
  • Available credit: less influential

FICO groups credit information into five categories with assigned percentages of impact:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

In both scoring models, you can see some similarities in the categories. Both scoring models are also looking at the age and type of accounts you have, along with your recent applications for new credit.

Payment history for both refers to the record of an individual’s ability and willingness to pay bills on time. Making payments on time and avoiding late payments, lawsuits, liens, bankruptcies, or foreclosures will positively impact one’s score. Late payments can have a negative impact on a person’s score, with later payments resulting in more severe penalties.

Percentage of credit limit used under the VantageScore and amounts owed under the FICO score are both considering your utilization ratio. This is the amount of credit you are currently using compared to your total available credit limits on your cards. The lower percentage you are using of your available credit, the better impact it has on your score.

Why Scores Differ Between Bureaus

Notably, scores can vary across the three major credit bureaus: Equifax, Experian, and TransUnion. This variation stems from each bureau possessing slightly different credit information about an individual, as not all lenders report to all three bureaus.

Furthermore, even with identical information, scores can still differ due to the custom scoring models each bureau employs. Each model is refined to work optimally with the bureau’s unique data set, adding to disparities in scoring.

Additionally, industry-specific FICO scores add another layer of diversity. Lenders may use these specialized scores to assess credit risk for particular types of credit, such as auto loans or credit cards.

How to Check The Right Score

To obtain your credit score, you have several options. Firstly, you can request a free credit report once a year from each of the three major credit bureaus through AnnualCreditReport.com. This report will provide you with a detailed overview of your credit history and accounts.

When applying for a specific type of credit, such as an auto loan or credit card, inquire with the lender about the specific credit scoring model they use. This way, you can check your credit score with the corresponding bureau that provides that particular score.

Although the scores you see may be different, they can all still help you monitor your progress and see trends. Monitoring your credit report and score is a great step to take towards improving your overall credit score and financial wellness. Dovly AI is an advanced credit engine that tracks, manages and fixes your credit all in one, easy to use, AI powered app. Enroll today for free and receive a monthly TransUnion credit report and VantageScore.

Frequently Asked Questions

Is Dovly Free Credit Repair?

No. We do much more than free credit repair. Dovly is a comprehensive AI credit solutions engine that monitors, (re)builds, and protects your credit. It offers a range of tools and services to assist you in achieving better financial health.

How is Dovly different?
We never sleep! Dovly is a holistic approach to credit management. We don’t just diagnose you with a credit score or problem; we’re committed to addressing and resolving your credit issues. Our AI engine finds the quickest, most effective route to boost your score so you can enjoy financial peace of mind. No more juggling multiple solutions – Dovly is your all-in-one solution for credit management.
Can I trust Dovly?

Yes, you can trust Dovly. Not only do we work with national banks, reputable businesses, and personal finance companies, we also have executive leaders who are accomplished and respected by industry peers. But more than anything our customers can attest to our value and service. Our Database is also encrypted and all personal information is stored on a segregated network to provide an additional layer of security.

How many points can I expect my score to go up?

Dovly Free members see an average score improvement of 37 points, while Premium members see a 69 point score improvement on average. Our data shows that members who are more engaged and log into Dovly regularly see significantly better results.

Tedis Baboumian

Tedis Baboumian is Dovly’s Co-Founder and Chief Credit Officer. With over 20 years of experience in the consumer credit industry, Tedis is an authority on the credit industry and has cultivated dee… Read More