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Updated on Tuesday, November 27, 2018
When you need to borrow money, a lender will consider your credit score when determining how likely you are to repay a debt.
FICO® Scores, from Fair Isaac Corp., are the credit scoring models most commonly used by top lenders. In October 2018, FICO announced a partnership with credit reporting bureau Experian and financial data aggregator Finicity to release the new UltraFICO™ Score.
If you’re wondering how and when UltraFICO could affect your credit score, here’s what you need to know.
What is the UltraFICO Score?
The biggest change with UltraFICO is that it looks beyond borrowing behavior to consider bank account transactions to help generate a credit score.
“It’s not a traditional credit score because traditional credit scores are based on your credit report, which actually doesn’t include deposit account information and includes only information about credit accounts,” said Chi Chi Wu, a staff attorney for the National Consumer Law Center, a nonprofit focused on consumer advocacy.
The UltraFICO Score is also unique in that consumers must opt in to link deposit accounts to their credit profiles, Wu said. Only then can FICO and its UltraFICO partners access and collect bank account transaction data and include it in the scoring process.
How will UltraFICO work?
From initial reports, it appears that the UltraFICO Score will primarily be offered as a second-chance score. For example, “One use case is that a lender would invite a consumer who is in the process of applying for credit to participate in the UltraFICO scoring process,” said David Shellenberger, senior director of scores and predictive analytics at FICO.
A borrower who opts into sharing bank account data might then be able to get an UltraFICO Score that’s higher than a traditional score. That is, they might see a boost in their score if the transactions on their reported accounts demonstrate responsible, low-risk financial behavior.
“The score follows the same framework as the traditional FICO Score and is designed to be scaled the same,” Shellenberger said. This means consumers can use the UltraFICO Score as a stand-in for other credit scores.
Here’s an overview of how different FICO Scores are typically classified by lenders:
|Excellent credit scores: 800 and above|
|Very good credit scores: 740-799|
|Good credit scores: 670-739|
|Fair credit scores: 580-669|
|Poor credit scores: 579 and below|
Whose scores could increase with UltraFICO?
The new UltraFICO Score could help boost the scores of millions of U.S. consumers, as well as help lenders provide applicants with a second chance to qualify for credit.
Using UltraFICO in this way “is particularly helpful for consumers that may also have very sparse or inactive credit files and can provide visibility into positive financial behavior that may not be accessible via the traditional credit report,” Shellenberger said.
Here are specific details on who’s likely to see a higher score with the UltraFICO model:
- Consumers with no credit history or without enough credit information on file to formulate a credit score: More than 15 million Americans who were previously unscored with FICO due to a lack of credit history would be able to get a credit score if they participated in UltraFICO reporting, FICO estimates.
- Account holders with positive financial management in their bank accounts: 7 in 10 consumers who maintain an average savings balance of at least $400 without overdrawing over three months would have an UltraFICO Score higher than their FICO Score.
- Consumers who have negative marks on their credit history due to a temporary financial hardship or mistake: UltraFICO could point to strong signs of financial recovery and help boost consumers’ scores.
- People who have “fair” FICO Scores or whose scores are near or just below a lender’s minimum requirements: The new scoring model could provide additional information that could push their score high enough to access new borrowing opportunities and lower rates.
When will the UltraFICO Score be available?
You might not be able to take advantage of this new credit scoring option for several months. A pilot version of the UltraFICO Score will be out in early 2019, before it’s more widely released in mid-2019.
Not all lenders will use the new UltraFICO Score to assess credit applications. FICO has several different scores for different types of lenders and purposes, and some are more popular than others.
The FICO Score 9 that was developed and released a few years ago, for example, adjusted how medical debt, paid-off collections and rental history are considered in calculating a score. As a result, many consumers scored higher under FICO 9 — but it has yet to be adopted as widely as the more popular FICO Score 8.
Still, creditors and lenders interested in serving consumers that barely miss credit requirements might take a look at adding UltraFICO to their application processes. “I would encourage lenders to consider this because it expands their potential customer base,” Wu said.
Consumers interested in the UltraFICO model will likely have to wait until mid-2019 before they might see it in action.
How to build your UltraFICO Score
The UltraFICO Score works to identify whether a consumer’s bank account transactions demonstrate that they are “positively managing their financial affairs,” Shellenberger said.
Similar to how a traditional credit score factors in different elements of a consumer’s credit account history, the UltraFICO will weigh bank account histories and score a consumer on favorable or risky behavior.
If you understand what UltraFICO looks at, you can start managing your checking, savings and money market accounts to set your score up for a boost.
Here’s what you can do with your bank account to help build your UltraFICO Score:
Maintain long-standing bank accounts
“We see that consumers that demonstrate relatively longer relationships with their checking and savings account providers are less likely to go delinquent or default on a credit obligation,” Shellenberger said.
Use your bank accounts often
“Consumers that have more frequent transactions versus those that rarely use their checking or savings accounts are better credit risks,” he added. Simply put, you want to make sure you have money moving into or out of your accounts on a consistent basis.
Avoid overdrawing your account or bouncing checks
Consumers who keep their account balances in the positive will be scored better by UltraFICO, but that’s not always easy.
“Frankly, there are banks that set tripwires for consumers to trigger overdrafts,” Wu said, pointing to “reordering transactions and being aggressive in getting consumers to opt into debit card overdraft protection.”
The best way to protect yourself from account overdrafts is opting out of overdraft protection and closely tracking account balances, deposits and withdrawals.
Develop a strong savings habit
“As we look at the ratio of money coming into [demand deposits] accounts versus going out, if we see a bit more coming in than going out (indicative of saving), this is correlated with better credit risk,” Shellenberger said.
Get a budget in place that helps you live within your means and spend less than you earn each month. Try to widen the gap between income and spending, too, so you’re saving more each month.
Should you be concerned with your UltraFICO Score?
The UltraFICO Score could be a step toward opening up credit opportunities for millions of Americans who can’t qualify with previous scores.
But consumers should consider whether they are likely to benefit from the UltraFICO Score before agreeing to share their bank account data.
Some people’s UltraFICO Scores could be lower than what they’d score with other models. This might be the case if you have spotty financial behaviors and an unfavorable bank account history. And if you already have an excellent credit score, Wu said, you’re not likely to benefit from the UltraFICO Score.
You should also consider your level of comfort with sharing your financial account information. The UltraFICO is a positive use of such data, Wu said, but other potential applications could be worrying, such as debt collectors accessing this data. And last year’s Equifax data breach proves that consumers should be concerned with how credit reporting agencies collect, store and use personal data.
“Consumers participating in this process have greater control and transparency over the financial information that is being shared with a credit grantor,” Shellenberger clarified when asked about privacy and security concerns. “The consumer has direct access to this data and therefore knows exactly what is being shared.” Finicity, Experian and FICO have also set up extensive information security measures and protections to keep users’ data safe, he added.
The reward of getting a higher UltraFICO Score could be worth it for average-credit consumers who need to borrow money — and meet the requirements to do so. If this is you, focus on building your credit now and keep your eyes open for more new on UltraFICO.