In partnership with Experian and fintech company Finicity, FICO recently announced a new credit scoring model called the UltraFICO Score.
This new score will give customers the choice to include data from their bank accounts as well.
This marks the first time the credit scoring pioneer has included consumer-contributed data in its credit scoring calculations.
This makes it possible for people who can’t or don’t meet FICO’s standard credit requirements to get a score. It also has the power to help boost the credit scores of people who have limited, bad, or fair credit.
How does the new UltraFICO Score work?
In the past, consumers have had no say about what goes into their FICO score. Instead, the company considers five factors based on information found in a consumer’s credit report.
With the UltraFICO Score, consumers may grant permission for FICO to also include data from their checking, savings, and money market accounts.
The information FICO will consider includes the length of time the bank accounts have been open, the frequency of activity, and the evidence of saving.
On the credit side of things, the UltraFICO Score will be based on your Experian credit report only. This diverges from the base model FICO score, which allows lenders to pull information from any of your credit reports from Experian, Equifax, and TransUnion.
“A consumer-contributed data approach allows lenders to gain deeper insights into the credit risk of a prospective customer through a more comprehensive understanding of the consumer’s financial profile,” says David Shellenberger, senior director of scores and predictive analytics at FICO.
How can the UltraFICO Score help you?
If you already have good or excellent credit, adding in your banking data may not do much to increase your credit score.
But if you have limited, bad, or fair credit and your credit score doesn’t reflect your responsible financial management, including that information can help you.
That’s especially the case if your score is just below a certain lender’s minimum credit score threshold. It can also be helpful if your score is in a gray area where it could be considered fair or good, depending on which lender you apply with.
“Consumers participating in this process have greater control and transparency over the financial information being shared with a credit grantor,” says Shellenberger. “The consumer has direct access to this data and, therefore, knows exactly what is being shared.”
To give you more hard numbers, FICO states on its site that 70% of consumers who show average savings of $400 without negative balances in the past three months see an increase in their UltraFICO Score.
What’s more, 15 million consumers who currently don’t have a FICO score will have an UltraFICO Score.
Keep in mind that lenders can’t view a credit score based on this information unless you allow it. So, if you have solid credit, you don’t need to worry about a poor bank history hurting your chances of getting approved.
Some factors to consider about the UltraFICO Score
The idea of getting a shot at improving your credit through non-traditional means is an exciting prospect. But there are some things to consider before you start making plans to apply for loans.
It may not be available for a while
In FICO’s press release, it announced that it would launch a pilot program for the UltraFICO Score in early 2019.
During the pilot, FICO plans to ensure the scoring model is valid and usable. They also want to determine whether consumers are willing to share their financial data in exchange for a potentially higher credit score.
Shellenberger expects that consumers will be able to view their UltraFICO Score through Experian and that all lenders will be able to use it later next year.
“As the UltraFICO Score is being rolled out in an initial pilot mode,” he says, “consumers will likely only access their score through lender disclosure, for example, if they are declined credit on the basis of that score.”
There’s no guarantee that lenders will use it
Each lender has its own criteria for determining your creditworthiness. T hat includes using whichever credit score it considers best for its needs.
As a result, many lenders still don’t even use the latest version of FICO’s base model, FICO 9.
Since lenders don’t have to use the new UltraFICO Score, you may not have the option to include your financial data. This means you’ll still be judged based on a traditional FICO score.
It’s not clear how much your bank data will help
With FICO’s base model score, you have a good idea of what goes into your credit score calculation:
- Payment history (35%).
- Amounts owed (30%).
- Length of credit history (15%).
- Credit mix (10%).
- Recent credit (10%).
And while those are considered basic guidelines more than hard-and-fast rules, they’re still a good standard for the average consumer.
Incidentally, the average FICO score is currently strong with an average of 704.
With the new UltraFICO Score, the company shares what can help, but not how much weight it carries. That said, your bank information can help if you show:
- Evidence of savings and a healthy average balance.
- No negative balances.
- A long account history.
- Regular bill-pay and other transactions.
The bottom line
The UltraFICO Score has the potential to make a big difference for people who are either credit-invisible or don’t have a solid credit history.
But it may take a while for it to launch. It’s unclear how big of an impact it will have. Regardless, the most exciting aspect of the UltraFICO Score is that the alternative credit movement is here to stay.
Now that the industry leader is incorporating it into a scoring model, more lenders may be willing to look past a so-so credit history to your overall financial management. And if they like what they see, you may have a better chance of getting approved than you have in the past.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.