The Fair Isaac Corporation (or FICO) rolled out a new credit score in 2019 — the UltraFICO Score. The new score could improve access for people with low or limited credit.
The UltraFICO credit score, with your permission, builds onto your traditional FICO credit score by adding banking activity to the factors your base scores already consider.
By providing lenders access to your banking activity — such as the length of time your accounts have been open and evidence that you’ve been saving — your UltraFICO Score could present an opportunity for you to demonstrate your responsibility with money beyond what your traditional credit scores might show.
How does it work? If you apply for a credit card or loan but your base FICO credit scores are too low, the lender might offer to pull your UltraFICO Score, as well. This new score would reflect your banking activity, in addition to the base factors of payment history, amounts owed, length of credit history, new inquiries and credit mix.
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Following the 2007–2008 housing crisis, and the subsequent Great Recession, banks were discouraged from lending so freely to subprime borrowers.
A combination of lenders making riskier mortgages available to more subprime borrowers, those subprime borrowers defaulting on their loans, and other factors led to government regulators scrutinizing lending practices when the housing bubble burst.
This led banks to focus instead on lending to prime borrowers, who have better credit than their subprime counterparts. But after years of aggressively pursuing people with good credit, banks may be feeling like they’re running out of prime borrowers and looking for ways to grow their business beyond prime lending.
FICO is hoping to bridge the gap between seemingly risky borrowers and subprime-shy lenders with its new UltraFICO Score, which aims to increase lending volume without increasing risk. By taking a more holistic look at the finances of people with lower traditional credit scores, FICO may be able to broaden the availability of credit while continuing to help lenders identify riskier borrowers.
The UltraFICO Score may help expand credit access to borrowers who have fair-to-poor credit histories and to young people, like college students and recent graduates, who have no credit at all.
Some see this as a positive step that can help more low-income consumers participate in an economy that revolves around credit.
But it also raises concerns.
In some cases, your UltraFICO Score may actually go down after accounting for the new information, David Shellenberger, FICO’s senior director of scoring and predictive analytics, said in an interview with The Wall Street Journal in 2018.
In addition, looser standards might mean there’s a chance more people will take on more debt than they can afford — a situation that many experts blame for the Great Recession. So to some, expanding access to people with poor-to-fair credit shows that banks have failed to learn from the mistakes of the past.
It could also create privacy issues, since you’d be providing sensitive banking details.
The UltraFICO Score might help you qualify for better credit cards, auto loans and mortgages with lower interest rates.
All you have to do is apply for a loan (or credit card) the same way you regularly would. Again, if your base FICO credit scores are not high enough, the lender may offer to take a look at your UltraFICO Score. You’ll have the opportunity to opt in by providing information about your bank accounts.
But it’s entirely up to you. If you don’t feel comfortable giving prospective lenders more information about your banking activity, you can decline.
It’s also important to note that if your base FICO credit scores are good enough for you to qualify, you might decide not to participate.
Start by taking a closer look at your bank accounts. Once lenders begin offering to look at your UltraFICO Score, it’s a good idea to be aware of your recent bank activity first so that you aren’t surprised by what they find.
FICO says, “7 out of 10 people in the U.S. who have had consistent cash on hand in recent months and kept positive balances on their accounts could see an UltraFICO Score that is higher than their traditional FICO Score.”
That means it’s especially important to avoid falling below $0 in your bank account, since that could lead to both overdraft fees and a lower UltraFICO Score.
Worst-case scenario? If you don’t meet these minimum standards, wait three months and try again after you demonstrate a track record of responsible banking activity.