The following is presented for informational purposes only.
The Fair Isaac Co. (FICO) recently announced a new scoring model – the UltraFICO score – will roll out in 2019, and will drastically change how consumer creditworthiness is determined.
So what is UltraFICO and what changes does it promise?
New Scoring Factors
The primary selling point of the UltraFICO score is that it’s intended to boost credit scores for consumers who haven’t developed much of a credit history. Typically, most credit scoring models are based almost exclusively on how you’ve used credit in the past. The best way to build a strong credit score is to use credit wisely, keeping balances low and never missing a payment.
UltraFICO promises to change things up by including your checking and savings history into the scoring model. This means your UltraFICO score will be based, at least in part, on things like your checking account balance, recent history of overdrafts, and how long your checking and savings accounts have been open.
The idea is to make credit and loan products more accessible for consumers who haven’t previously used credit. FICO is marketing the product as a tool to serve the “underbanked” – in other words, consumer segments that tend to avoid using credit and are more likely to live paycheck to paycheck, such as migrant workers, young workers, self-employed entrepreneurs, and consumers living with an inconsistent income.
Your Score May Not Be “Ultra” Any Time Soon
There will definitely be benefits to the new UltraFICO score, particularly for responsible consumers who are just starting out with credit, but don’t expect to see your life changed by UltraFICO any time soon.
As noted, the new scoring model doesn’t roll out until 2019, and even then it takes a while for credit scoring models to catch on. Remember, while we tend to think of our “credit score” as a single number, there are actually a lot of different scoring models out there. You don’t generally get to choose which scoring model your lender is going to use, either, so even if your UltraFICO score is higher, there’s no guarantee your lender is going to use it.
Easier Credit Isn’t Necessarily Better Credit
It’s always good to keep in mind the purpose of credit scores. While your scores (and remember, you’ve got a bunch) are in some ways a reflection of you, they aren’t really for you. Credit scores exist to help lenders and creditors determine risk and make decisions about loans and lines of credit.
UltraFICO promises to put more credit into the hands of consumers who haven’t previously had access to credit. Increasing access to credit can be a very good thing, but also a very dangerous thing if you aren’t prepared to manage the responsibilities that go along with using credit. No matter what your scores may be, if you’re going to use credit, it’s crucial that you understand how to use it safely and effectively.
Life in the Age of UltraFICO
So what does UltraFICO mean for you? For the time being, not much.
Eventually, it may help consumers with strong cash flow and solid banking histories, but poor credit histories, qualify for loans and credit products they may not have been able to access otherwise.
In the meantime, it serves your interests to continue working at building a strong credit history. Because although scoring models will always evolve, the value of using credit wisely and consistently isn’t changing any time soon.
Questions about your credit report? Curious about how your score is determined and what you can do to build a strong credit history? MMI offers one-on-one credit report review sessions for anyone looking to make the most of their credit. Learn more today.