FICO 8, Not FICO, Is Used In Recent Credit Company Report, Adding To Consumer Confusion

Trying to explain how a credit score is actually calculated is like explaining why the sky is blue to a 4-year-old. Impossible.

And the credit industry is not helping their own cause.

On Friday, the New York Times' Bucks Blog called out FICO, which compiles the most widely used scores, for a lack of transparency in a recent well-publicized survey that claimed credit scores were on the rise.

The survey, which FICO published last week, showed that the number of consumers with FICO scores over 800 is at its highest level since 2008. The company did not explain they used a newer version of their credit scoring formula called FICO 8, rather than the older FICO, in their analysis. The newer score has the same scale as the original, but it is a more forgiving rating method and could move scores up by as much as 20 points. Both FICO scores are based on a 300 to 850 scale.

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If this feels like splitting hairs, it's not. For consumers, this obscurity adds an additional layer of confusion to an area that is already something of a black box. Some lenders use FICO, some use FICO 8 and others use a VantageScore. To make matters even more confusing, the credit reporting companies (e.g., TransUnion, Experian and Equifax) can also give other brand names to these scores. FICO told the NYT that more than 7,600 creditors use FICO 8, including Citibank's credit card unit.

Both FICO and VantageScore have their own scale and formulas for creating a score. For example, a 660 FICO score, based on a 300 to 850 scale, is relatively higher than a 660 Vantage score, which is based on a scale of 501 to 990. Variables such as the number of recent credit inquiries, late payments, liens, debt-to-income ratio and so forth all impact a credit report and score on an ongoing basis.

According to the NYT, the company defended the report's findings and said the upward trend remained, regardless of whether it used FICO or FICO 8 in its analysis.

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Comments

[Stewart Goss]

07:18 PM on 05/14/2012

Credit cards are great if you manage them properly. You can easily earn $300-$500 a year and pay no fees.

[spartanladkenny]

03:05 AM on 05/12/2012

You don't have to worry about your credit score if you don't borrow stuff that you can't afford.

[lofttypeofaview]

07:40 AM on 05/12/2012

What about those whom weren't able to consent to the borrowing? Like when a thief commits credit card fraud or when an unconscious victim is taken by ambulance to a hospital, has surgery and then is placed in a medically induced coma for months? Life isn't black and white or cut and dry.

[spartanladkenny]

08:40 AM on 05/12/2012

What are you talking about? You don't get dinged for credit card fraud. You can file a claim and remove credit card fraud off your score. These days pretty much every credit card has protection offered against identify theft. Unconscious victim? How many people in our country suffer from this medical emergency situation? Way to go exaggerating a simple truth that Americans living way beyond their means and mess up their credit.