February 25th, 2019 8:27 AM by Jackie A. Graves
are good you know all about your credit score. Also called a FICO score, this magical
number is a major factor in many financial transactions, including qualifying for a mortgage and renting apartments.
some info that may have slipped past your news feed: In October 2018, the Fair
Isaac Corp. (the creators of FICO) announced a whole new scoring method
called the UltraFICO. Currently in beta testing with a small, undisclosed group
of lenders, this new scoring method is expected to be more widely released
in April 2019.
So, what is
this exciting new scoring model? Will it help? Will it hurt? Here’s what you
need to know.
FICO vs. UltraFICO: What's the difference?
traditional FICO score looks only at the money you borrow from lenders
(e.g., through credit cards, and car and college loans). FICO scores generally
do not factor in any traditional bank accounts, be it checking or savings.
UltraFICO, in contrast, does look at your
banking behavior, adding it to the mix along with more traditional metrics like
your credit card payments. UltraFICO examines your checking, savings,
and/or money market accounts (which are similar to savings accounts
but offer a higher interest rate in exchange for maintaining a higher balance),
and reports on details such as the following:
account history: How long have you had
these accounts? The longer the better.
account balance: According to the
UltraFICO website, it's looking for “a healthy average balance.” It doesn't
spell out exactly what that means, but it suggests that consumers with a
balance of at least $400 over a three-month period should fare well with this
new scoring system.
account activity: Do you regularly pay your
bills through your bank account? If you don't, you may want to start, since
that will be considered, too, particularly how often you pay your recurring
bills (e.g., cellphone and utility bills), according to Nathan
Danus, director of housing at DebtHelper.com in West Palm
If you show
“responsible financial behavior” in these accounts, this could improve your
credit score. If you have imperfect credit or no credit but you have a
positive banking history, your score may see a nice boost.
you have even a few hundred dollars in your account, and if you haven’t bounced
checks or gone under the minimum balances, that will now count in your favor,”
Dvorkin, a certified public accountant in Fort Lauderdale, FL.
Will UltraFICO replace FICO?
banks and lenders are going to use it initially as a backup scoring model,”
The way it
will likely work, according to Danus, is that when you apply for a loan or
mortgage, if your regular FICO score isn’t high enough to qualify you, the
lender may ask for your UltraFICO.
is also voluntary. You don’t have to volunteer your banking information with a
prospective lender for review unless you want to. This is a major difference
from your FICO score, which is calculated whether you like it or not.
Who will benefit from UltraFICO scores
credit history takes time. If you have
little or no credit history but do have a banking
history, you may be able to generate an UltraFICO score even if you don’t have
enough of a credit history to generate a FICO score.
As such, the
UltraFICO has a lot of potential, especially for consumers with borderline
credit (meaning you’re at the cutoff between having poor and fair credit or
between having fair and good credit) or who have a limited credit
history. FICO estimates that over 15 million consumers who don’t have a
FICO score could receive an UltraFICO score.
already have a good FICO score, then you probably don’t need to worry about the
UltraFICO. Whether the UltraFICO will help you depends on your banking history.
consumer finds themselves among the 60% of Americans who have very little to no savings funds,
the UltraFICO will likely not help build their credit rating,” says Todd
Christensen, education manager at Money Fit by DRS in Boise,
don’t have a recent pattern of positive savings may
not want to opt in to the UltraFICO, according to Christensen.
How to prepare
is currently in beta testing. Ultimately whether the program is expanded
depends on how well it does for consumers as well as lenders, according to
goes well, consumers may soon see this option available with lenders in April.
And there's a way to prepare: Start building up your savings now,
so that if you have the chance to opt in, you’ll have a positive banking
history for lenders to review.
though, don’t let the UltraFICO distract you from taking steps to improve your FICO credit score.
It’s still important to make on-time payments to lenders, to pay down your
credit balances, and to make payments arrangements if you have any delinquent
smart financial news and advice, head over to MarketWatch.
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