Did you know that you have more than one FICO score? It’s true: FICO releases multiple versions of its scoring. And since many kinds of small business credit are based on your personal financial credit, it’s important to become familiar with the various FICO score versions that could come into play when you’re applying for a business loan. This is especially true when you’re first starting out, if you haven’t established business credit, or if you’re trying to get financing without collateral.
FICO scores are credit scores that represent your risk to lenders. Established in 1989 by Fair, Isaac & Company, these scores are based on information from the three credit bureaus: Experian, TransUnion, and Equifax. Lenders use FICO scores, along with other information about borrowers, to make lending decisions that impact your approval, interest rate, and loan terms.
Basic personal FICO scores range from 300 to 850, with industry-specific FICO scores—more on these later—ranging from 250 to 900. The amount of money you owe, payment history, length of credit history, new credit, and your credit mix are all factors in your FICO score.
According to FICO’s consumer site, MyFICO, evolving lender needs for borrower information and changing consumer behavior have led to the development of multiple versions of the FICO score. These include FICO versions for each credit bureau, updated versions of the basic FICO scores, and industry-specific FICO scores for credit products like credit cards, mortgages, or auto loans.
Your credit scoring might vary depending on which lender you’re using because different lenders use different versions. Learn the differences between the FICO score versions to better understand the credit decisions your lender makes.
FICO scores result from using a mathematical formula populated with details from each credit bureau. Since the information from each of the credit bureaus might differ, borrowers can have at least three different FICO scores—based on information from Equifax, Experian, and TransUnion.
The credit bureaus make money by selling their credit reports and scores to lenders. When you apply for credit, ask your lender which bureau provides the report and score so you can compare it to the information and score provided by the other credit bureaus.
Another thing to know about different FICO scores is that FICO releases updated versions based on new credit collection, credit bureau reporting, and data analytics. You can think of these newer versions like software updates, in fact. For example, FICO Score 9 is the most current basic FICO score version available. It updates the previous FICO Score 8 by changing the impact of third party collections, medical collections, and rental history.
Here’s where it gets interesting. Just because there’s a new FICO score version, that doesn’t mean all lenders who were using the previous version have updated to the new version—after all, it costs money to do so. Each lender evaluates if and when they’ll adopt the newer version, and while some could choose to upgrade right away, others might take months or even several years to do so. This results in even more FICO score versions floating around.
As a borrower, if you know which FICO score version your lender is using and what that version includes or doesn’t, you can compare it against your own credit records. You’ll be able to see whether you might be hurt or helped by the information your lender is using to say “yes” or “no” to your loan, line of credit, or other credit applications.
In addition to the FICO scores created for each of the three credit bureaus, plus the various updated versions, industry-specific scores were created to more accurately reflect the risk of lending in certain industries.
While basic FICO score models like FICO Score 8 or FICO Score 9 were developed to represent the risk of lending across a variety of credit accounts, industry-specific FICO scores assess the risk of lending within a specific category or for a specific purpose. Typical examples include credit cards, which might use FICO BankCard Scores, and car loans, which many use FICO Auto Scores for. Each lender can choose whether to use a basic FICO version or an industry-specific version when making credit decisions.
Order your personal credit report for free—you can order this once per credit bureau every year. Become familiar with what’s included in the different FICO score versions that are out there, and be prepared to ask the lenders which FICO score they’re using and from which credit bureau! Then, match the criteria for the version up against a copy of your credit report from each of the credit bureaus. This way you’ll have a better idea of the information guiding your lender’s credit decisions.