In 2019, FICO is introducing a new credit scoring system that takes into account how borrowers manage the money in their bank accounts. This scoring method will consider a consumer's checking, savings, and money market account history when producing a credit score.
To get this new credit score—called the UltraFICO Score—you have to provide access to your banking account information. But you should consider the upsides and downsides before you opt in. For some people, this scoring system will result in a higher credit score, which will likely make it easier to get new credit. Though, just because you can get more loaned money, you might want to think twice before doing so. Also, you should consider whether you want to make your bank account information available for this purpose.
FICO scores usually range from 300 to 850, though some industry-specific scores range from 250-900. Traditionally, a FICO score was based on a person's payment history (35%), amounts owed (30%), length of credit history (15%), whether the person recently applied for or got new credit (10%), and the mix of credit types (10%). People with the highest scores get access to the best interest rates. Consumers with low scores usually get unfavorable rates or are denied credit altogether. (Learn more about how the credit reporting agencies typically calculate credit scores.)
Starting as a pilot program in early 2019, a new kind of score—the UltraFICO Score—will take into account a person's banking activities when computing the score. The new scoring system will consider factors like:
The UltraFICO Score is scheduled to be broadly available as of mid-2019.
To get an UltraFICO Score, you have to link your checking, savings, and money market accounts—just the ones you want considered—to FICO, which are then electronically read by Finicity (a financial technology firm working with FICO) and combined with consumer credit information from Experian.
If you apply for a loan or other form of credit, the score is distributed to the potential lender along with a report that summarizes your bank accounts. (To learn more about how the UltraFICO Score works, see UltraFICO Score or UltraFICO.)
According to FICO, people who have credit scores in the upper 500s to lower 600s—or who have a limited history or previous financial distress—will benefit the most from this scoring method. Some consumers, as many as four million, could have an increase of at least 20 points. FICO also claims that seven out of ten consumers who can show average savings of $400 without negative balances in past three months will see an increase in their FICO score under the UltraFICO scoring system, and that over 15 million consumers who currently don't have a FICO score could get an UltraFICO Score.
However, keep in mind that, depending on the circumstances, your score could actually decrease if you have your banking information taken into account.
Following the financial crisis of the late 2000s, lending guidelines became stricter. Banks have since become very wary of borrowers with low credit scores. (A low credit score generally means that a person is more likely to default on a debt.)
The UltraFICO Score was, according to FICO, set up to give people with negative marks on their credit histories a chance to have their banking activity considered as part a credit score, which could make getting credit easier (if they get a higher credit score as a result). FICO also claims that it will give consumers greater control over the information being used in making credit risk decisions.
But really lenders just want more customers. So, FICO and Experian came up with a way to help lenders increase lending. By considering consumers' banking activities, which raises some borrowers' credit scores, lenders get a bigger pool of potential borrowers. If an applicant's traditional FICO score isn't good enough to qualify for a new loan or credit card, for example, the lender can offer to reconsider the application using an UltraFICO Score that reflects the applicant's banking activities.
Offering an UltraFICO Score is the latest in a number of changes that the credit reporting agencies have made to increase consumers' scores including deleting most tax liens and civil judgments from credit reports, removing debts that didn't arise from a contract or agreement by the consumer to pay, and putting less weight on unpaid medical bills.
Generally, a scoring system that takes into account your banking history and could raise your credit score sounds like a good thing. But the concerning part about this scoring system is that it was developed basically as a mechanism to increase loan approvals and make it easier for lenders to extend credit to consumers.
Just because a lender will make a loan to you or give you a new credit card, doesn't mean you should take it. Ultimately, you're in the best position to determine whether you can afford to take on new debt.
According to the Wall Street Journal, once you provide access to your banking accounts, Experian will retain a cache of that information. However, after the massive data breach at Equifax (another credit reporting agency) in 2017 that compromised the personal information of 143 million consumers, consider whether you really want to give your bank account information to a third party, like a credit reporting bureau or financial technology firm, knowing that hackers could potentially access the information someday.
Effective date: October 22, 2018