Fair Isaacs Corp. to Roll Out UltraFICO Score Next Year
The way that credit scores are calculated in the U.S. could be in for a major change. According to the Wall Street Journal, the Fair Isaacs Corp. plans to expand the scope of FICO scores beyond payment history, looking at how consumers manage their money in various banking accounts. While this might seem like a way to disqualify more borrowers, the hope is that the new measure will actually increase the standings of those who might not have traditionally established credit but practice good financial habits.
Dubbed the UltraFICO Score, this new measure of creditworthiness has reportedly been in development for some time. As mentioned this new measurement tool will look at balances in checking, savings, and other accounts as well as any infractions such as overdrafts. As a result the company says that those who have at least $400 in their bank account, make frequent transactions, and haven’t incurred any overdraft fees in the past 90 days are likely to see a boost from the new scoring system.
Unlike traditional FICO scores where any credit account in a consumer’s name is automatically fair game, users will be able to select which bank accounts to include in their UltraFICO score when asking lenders to rescore them. Because of this and many other factors, UltraFICO is not set to replace the regular FICO scores. Instead the former may be utilized by lenders as a backup or appeal when a decision based on regular FICO leads to a declination.
WSJ says Fair Isaacs Corp. is currently in discussions with multiple institutions to utilize UltraFICO scores as a pilot test next year. Among them is the country’s third-largest credit union by assets, Pentagon Federal Credit Union. Despite that it will likely take time until UltraFICO is widely used by lenders.
Interestingly the announcement of UltraFICO comes just a few weeks after the average credit score in the United States reached a new high of 704. Moreover 58.2% of Americans were found to have scores over 700. Still, for those without credit, building their scores can sometimes be a catch 22. That’s where the new system may be able to help. At the same time, as Ted Rossman of CreditCards.com told TwoCents, “The possible unintended consequence of including bank account balances would be an increased focus on income and assets.”
Ultimately whether or not UltraFICO proves to be a win for consumers will depend on its execution. With a fairly sound premise, the idea could prove to fix one of the problems that comes with relying solely on traditional credit scores. However we’ll have to wait and see if the first UltraFICO adopters utilize this data to proper effect or whether this new system will only continue to disenfranchise those who are underbanked.
Also published on Medium.