The UltraFICO Score Can Make a Difference
While your credit score is an important indicator of your financial health, many people don’t use credit regularly, but they pay their bills on time and even more importantly, maintain savings accounts.
FICO, the most important name in credit scores, partnered with a Fintech company, Finicity, and one of the top three Credit Reporting Agencies, Experian, and introduced a new trial credit score model, the UltraFICO.
The new model looks at more than just your credit and debt history. Suppose that you only keep one credit card, don’t run up debt, and have several banking accounts. Not only do you pay all of your bills on time, but you also keep a savings account. Shouldn’t lenders take into account your healthy financial habits?
According to a press release from late 2018, FICO’s UltraFICO score,
"help consumers improve access to credit by tapping into consumer-contributed data, such as checking, savings, and money market account data, that reflects responsible financial management activity.
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What Is UltraFICO?
The UltraFICO score uses additional information based on your bank account activities. The score is based on four main criteria:
- You maintain a bank account over time
- You avoid negative balances
- You have regular bill and banking transactions.
- You have a savings account of at least $400.
Based on your additional information, FICO recalculates your credit score. The Ultra FICO score is an opt-in model intended to help if you have a low credit score but don’t suffer from debt problems. It will be rolled out in 2019 through a select group of lenders. According to Fico's website,
The UltraFICO™ Score will initially be available through a small group of lenders as part of a limited pilot phase for consumers who cannot currently access credit or, in some instances, could be eligible for better terms. This initial pilot phase is designed for fine-tuning of the deployment of the score. As we complete the pilot phase, the UltraFICO™ Score will be more broadly available.
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Who Can Benefit From UltraFICO?
When you shop for a mortgage, auto loan, personal loan, or credit card a lender pulls your credit and uses your credit score. Lenders have minimum credit score standards. Maybe you pay on time, but don’t utilize credit. Your credit score might be too low to be considered a good credit risk.
According to Experian, 25% of the US consumers, over 18 have a "thin" file, with only 1-3 trades. Some people can benefit from non-traditional alternative credit files. However, there are still many people who need an extra boost to improve their credit scores.
FICO estimates, that
- Over 15 million consumers who currently do not have a FICO® Score could receive an UltraFICO™ Score.
- 7 out of 10 consumers that show average savings of $400 without negative balances in past three months see an increase in their FICO® Score with the UltraFICO™ Score.
Avoid the Pitfalls and Make Sure that You Fit the UltraFICO Model
The new scoring model can potentially help you get credit, or improve the terms lenders offer. However, there are a couple of potential problems that you need to consider.
Identity Theft: To receive an UltraFICO score you need to link up your bank accounts, savings account, and investment accounts. Increased sharing of information opens up the chance for additional identity theft risks. Although this is a potential risk, you are dealing with leading firms that have significant experience in collecting and storing your personal data.
Predatory Lending: Subprime got an awful name after the 2008 Great Recession. Many lenders used predatory lending tactics to offer consumers loans that they really couldn’t afford. Any credit scoring model that artificially builds your credit score is problematic. Avoid taking out loans that you can’t afford. >
Overall, the UltraFICO model seems to overcome these problems. However, it is always a good idea to make sure that new credit is beneficial to your overall financial situation. In general, it takes lenders a long time to adopt new credit models. It remains to be seen whether lenders will adopt the new model.