Understanding the New UltraFICO Scoring Model

If you’ve been having a hard time getting approved for a mortgage loan, a new credit scoring system may be the solution you’ve been waiting for. This new type of credit scoring system is called UltraFICO, and it works by using the information from your checking, savings or money market accounts to provide you with a better score, instead of your credit cards and loans. This new scoring model is really going to help those who have yet to build credit history, or who fall in the 500-600 FICO score range.

It’s estimated that approximately 7 million consumers currently have FICO scores in the upper 500 to lower 600 and another 15 million have no credit at all.

Credit scores are made up by a number of different factors, mainly your credit history and the amounts owed. However, UltraFICO will focus on your financial behavior, not debt. UltraFICO gives lenders a better idea as to how likely you are to repay your debt. Some of the things that it takes into account include savings, healthy bank balances, on time bill payments and avoiding negative balances. FICO is referring to UltraFICO as “the score you build” by allowing consumers to take control and gives the ability to qualify for more lending options and in return, better terms.

According to FICO, approximately 70 percent of consumers who demonstrate an average savings of $400 without negative balances in the past 3 months will see an increase in their score.

So, how can you sign up?
The process is very simple and only requires a few steps. After accepting the terms and conditions, you will be able to link all of your accounts by providing your login information for each financial institution. Once your accounts have been linked, FICO will be able to use the information you provided to give you a score that better reflects your financial behavior. Lenders will be able to provide you with options to participate through your tablet, computer or phone. By linking your financial institutions, lenders will see your positive financial behavior as long as you have evidence of savings and keep a healthy average balance, maintain a bank account over time, avoid having a negative balance and regularly pay bills and make bank transactions. A traditional credit report does not take any of this information into consideration. At the moment, UltraFICO is not available with all lenders and is currently being used by a small group of lenders during a limited pilot phase to finish fine-tuning the scoring model. Once the pilot phase is completed, the UltraFICO score will become available to more consumers. Signing up is completely optional, but it won’t be offered to everyone. Consumers who can’t qualify by traditional scoring systems will be given the option to opt in. Keep in mind that by opting in, you will be authorizing lenders to access the information from your checking and savings accounts to evaluate how financially responsible you are. Those who already have great credit will not see much of an impact.
UltraFICO is best for those who are trying to build their credit, or are just a few points shy of qualifying for a loan. Those few extra points can be the difference between getting approved for a mortgage or not. However, if you have an inconsistent cash flow you might want to reconsider signing up as you could severely hurt your chances of being approved as lenders will see inconsistent balances as a risk.
If you are interested in getting your UltraFICO score once it becomes available, you can sign up for updates here: https://www.fico.com/ultrafico/
To learn more, please check out this video from Keeping it Real with Credit: