Breaking news: there’s a brand new type of credit score that caters to borrowers that don’t have a long credit history.
FICO, Finicity, and Experian recently announced the creation of UltraFICO, a brand new system for determining creditworthiness and access credit information. UltraFICO has been touted as a way for consumers to increase their odds of getting credit card or loan approval.
On the surface, this shakeup to the credit industry is showing a lot of promise in helping borrowers get the credit they need, but let’s look a little closer at the details:
How UltraFICO Scores Are Determined
Traditionally, credit scores have been determined by factors like payment history, outstanding payment, how much new credit you have, how many times someone has inquired your credit history, and the length of your credit history.
That last bit is one of the most damaging pieces of evidence because it prevents younger consumers that don’t have much credit history from gaining credit approval. It’s like not having previously existing credit is a form of punishment.
UltraFICO scores are calculated a bit differently. Lenders are able to review your money management habits (i.e. looking at your bank accounts) to see if you’ve overdrawn on your account and make sure you’re managing your funds well. They also look to see how mature your bank accounts are, see if they’re growing, and are making monthly recurring deposits (e.g. direct deposit on payday).
If your money management looks good, your score will likely see a boost.
Why Use an UltraFICO Score?
The UltraFICO score isn’t replacing the traditional FICO score. Rather, think of it as an alternative score that provides a second chance to borrowers who may not have desirable FICO score. It’s ideal for someone with a current subprime FICO score (640 or below), or someone that doesn’t have a FICO score at all.
If you have a desirable UltraFICO score, you could see a boost of 20 points or more to your FICO score.
Now, if you've been following me for a while, you already know that FICO has 65 versions of it's scoring model to date. Do you think every lender utilizes all 65? NOPE! So, a lender has a choice to on whether to adopt this version of FICO or not.
Who Benefits from the Move
UltraFICO appears to be a win/win for some consumers and lenders alike. There’s a growing need right now for banks and lending centers to widen their candidate pools. This means including those with zero or undesirable credit that should otherwise be able to make their payments. This is why the UltraFICO score looks at how well you manage your money a monthly basis. The thinking is, if you keep your account in the green, have savings, and don't have any overdraft fees, then chances are you can handle the credit/loan you are applying for.
As a result of allowing banks, credit card companies, and other lenders to have access to your banking information, they are able to lend more money and collect more revenue on interest and other fees. You the consumer benefit from getting the credit you need and the opportunity to boost your scores.
But hold on! Not everyone will see a boost in their credit score. If you overdraw on your bank account or aren’t great at managing your money, the UltraFICO score will see this and your FICO scores may suffer. Remember that the UltraFICO score is an option, so only pursue this option if you have a real chance of benefiting from it.
The lender will ask your permission to check your check your banking information and you can specify which bank account they can have access to. Let me repeat this: They cannot check your banking information without your permission! So, if you know you do not have the best banking history and they happen to offer to rescore your credit data using FICO's UltraFICO score, politely decline, and then contact me to begin working on Soaring Your Credit Scores!
How to Check Your UltraFICO Score
UltraFICO has been announced but not yet released. It’s slated to become available in early 2019. You can click here to request your score when it does become available to start building your credit immediately.
Hope this Helps!
Your Partner in Prosperity,