While Fair Isaac and Company, also known as FICO, has long considered several factors when determining your FICO credit score, the model used to assess your creditworthiness could be changing soon. This new method for formulating your FICO score will only be available to people who opt in, but it could be a boon for consumers who may have struggled to build credit until now.
According a press release, this new score will lean on “account aggregation technology and distribution capability from Experian and Finicity to 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.”
The new credit score, currently called the UltraFICO Score, has the potential to improve access to credit for consumers with credit scores in the high 500s and low 600s, noted FICO.
“Consumers who are relatively new to credit with limited history or those with previous financial distress that are getting back on their feet stand to benefit the most,” they said.
As an example, let’s say your credit history is shaky or nonexistent, so much so that you have struggled to get approved for a loan or credit card in the past or been asked to pay an exorbitant interest rate. However, you have a long history of using a checking account, a savings account, or a money market account responsibly. In that case, your lender could look into your banking history as yet another data point to use when determining your creditworthiness.
Experian and a company called Finicity will gather and share your banking data with your lender, along with your new credit score. Like the original FICO scoring method, UltraFICO scores will continue to use the same 300 to 850 range. The higher your score, the better off you are.
How to Use the UltraFICO Score to Your Advantage
If you believe this new scoring model could benefit you, it’s important to understand how your banking data could play a role. FICO has mentioned how your checking, savings, and money market history can be used to boost your credit score in some cases, but what does that mean?
For the most part, you must have a proven history of using these accounts responsibly. This means:
- You have a history of paying utilities and other bills through a checking account
- You aren’t in the habit of overdrawing your accounts
- You have a balance and a history of making deposits in your accounts
In summary, you must be using your bank accounts in a responsible manner. This means maintaining a healthy balance, never letting your accounts fall into the negative, and regularly using your account for normal financial transactions.
What You Should Do
According to FICO, you have to opt in and agree to share your banking details to qualify for a UltraFICO score. While sharing more of your personal information may not be ideal, FICO notes that doing so could help you “broaden your access to more lending options and better terms.”
FICO also notes that 7 out of 10 consumers who haven’t had a negative balance in one of their bank accounts would see a boost to their credit score if they opted into the UltraFICO score. Further, up to 15 million consumers who don’t have a FICO score at all could be assigned a score with this new scoring method.
If you believe you will take advantage of this option when the UltraFICO Score becomes available to lenders in mid-2019, there are several steps you can take now. Those steps include:
Start saving. According to Fair Isaac and Company, the UltraFICO score considers “evidence of savings and keeping a healthy average balance” as a big positive. This is yet another reason you should begin saving every month whether you can stash away $25 or $1,000. The more money you can save in a high interest savings account, the better off you’ll be.
Pay all your bills early or on time. Make sure you’re using a checking account to pay all your utilities and other bills on time or early. Not only will this help your credit score with the traditional FICO scoring model, but the new UltraFICO score considers “regularly paying bills and making other bank transactions” as a positive sign.
Keep using your existing credit responsibly. Continue making every effort to maintain a positive credit history. This includes paying bills early, keeping your credit utilization as low as possible, and not opening or closing too many new cards.
The Bottom Line
If you are struggling to qualify for new credit that could help you build your credit score, the new UltraFICO score could be exactly what you need. This updated credit scoring model will consider your daily money management habits in addition to your credit history, making it easier to get a good score if your credit history is thin or you continue coming up just short of lender’s minimum credit score requirements.
This is nothing but good news for consumers who are willing to share more of their personal data when they apply for a credit card or a loan. Not only can a better FICO score make it more likely you’ll qualify, but a better score can also lead to a lower interest rate and better loan terms.
“This changes the whole dynamic of the lender and customer relationship,” said Jim Wehmann, executive vice president of FICO in the company release on this matter. “It empowers consumers to have greater control over the information that is being used in making credit risk decisions. It also enables a deeper dialogue between the consumer and lenders to help both parties make better financial decisions. It’s a game changer.”
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