The UltraFICO score evaluates personal bank account information in addition to the data on an individual’s credit history. This opt-in credit model helps individuals with low personal credit scores of 680 or lower boost their existing FICO score by 20 or more points. It evaluates your savings’ amount, age of your bank accounts, and your accounts’ activity.
What the New Credit Score UltraFICO Is
The new UltraFICO credit score considers an individual’s personal banking behaviors to supplement data on their credit history, which the original FICO credit score relied on. It’s meant to improve your existing FICO score, which ranges from 300 to 850. A score of 850 indicates you’re most likely to pay back your debt on time.
UltraFICO is an opt-in credit scoring model that evaluates your demand deposit accounts (DDA), which are bank accounts you can deposit or withdraw money from immediately. FICO is having Finicity, a data company, collect the DDA information and send it to Experian to create each UltraFICO score. Unfortunately, borrowers who have prime credit ratings of 680 and higher won’t be able to tap into the new credit score UltraFICO to receive more favorable terms.
FitSmallBusiness interviewed David Shellenberger, senior director of scores and predictive analytics at FICO, and he explained how the score works:
“Once the consumer offers up their credentials, Finicity compiles their DDA transactions and sends to Experian. Experian hosts the scoring algorithm or “black box” developed by FICO. The new score consumes the DDA data obtained from Finicity in addition to a traditional FICO Score.
“The new scoring algorithm adjusts the existing FICO score given the additional insight offered by the DDA data or, in the case of unscorable consumers, will generate a new FICO score if minimum scoring criteria are met. This score is then transmitted by Experian to the lender along with reason codes reflecting the data used for score calculation, just like any other FICO score.”
The UltraFICO rating system will launch a pilot program at the beginning of 2019, with a small batch of lenders to test its development. However, FICO has not publicly released the lenders who will be a part of the pilot program. After FICO completes the pilot program, they will make available for more lenders to use by the middle of 2019.
Who UltraFICO Will Benefit
The new credit score system developed by FICO is an excellent secondary credit score option for people who may need to boost their score to access financing. This new credit score change benefits those with personal credit scores below 680, people with little credit history, and people that have no previous debt at all.
The new credit score system will most benefit people with:
- Little-to-no credit history: Individuals with thin credit histories, or no debt history at all, can benefit from an evaluation of their personal bank accounts; the new credit score can boost their approval probability for financing
- Credit scores below 680: If you have established your personal credit, but just miss the approval cutoff at a particular bank or lender, you can opt-in for the new score
- The need to rebuild their credit: If you’re looking to rebuild and build your personal credit, it probably means your current FICO score is too low to receive financing; the new FICO score can help you in the application process by providing a score based on an evaluation of your personal financial behaviors
Shellenberger estimates that people with limited credit history will see the biggest benefits of the new system. In our conversation with Shellenberger, he said:
“We estimate that there are about 160 million consumers applying for credit in the United States annually. Among these applicants, there are approximately 15 million consumers with thin or young files, defined as having four or fewer trade lines or a credit file open less than six years.
“Among these consumers, we estimate around 7 million could see a score increase using the UltraFICO score driven by a healthy balance of $400 or more a month and not having a negative balance in their checking or savings account in the past three months. Close to 4 million that meet these same criteria would see an increase of 20 points or more.”
This is part of a larger trend among credit reporting and scoring organizations who are exploring the impact of alternative data on credit access for individuals who are credit-invisible. Before this new credit score, there wasn’t a secondary option to help people and business owners gain access to necessary financing. If you didn’t have a sufficient personal FICO score, your application was denied.
How the New UltraFICO Score Will Benefit Business Owners
In addition to maintaining a strong business credit score, business owners also need a good personal credit score when applying for financing. For example, a general Small Business Administration (SBA) loan requirement is that business owners need a personal credit score of 680 or higher. If a business owner initially doesn’t qualify for financing, they can opt-in for the new credit score to get a second chance at approval.
If you’re a business owner with a low personal credit score, you also have a few other options to acquire financing. The first option is a secured business credit card, which allows owners with credit scores below 579 to build credit without paying high fees. The second is business loans without credit checks, which don’t require personal or business credit scores for approval.
How Consumers Can Opt-in to the UltraFICO Score
Consumers can opt-in to the UltraFICO score if they meet specific criteria. Individuals must have an average balance of $400 in their savings over the last three months, no negative account balances within the last three months, and apply with a bank or lender that uses Experian.
The criteria consumers must meet to opt-in and qualify for the UltraFICO score are:
- $400 savings account balance: Average balance of $400 in savings over the last three months
- Nonsufficient fund (NSF) situations: This is when your bank account balance has gone negative; to qualify for UltraFICO, you must have no negative account balances within the last three months
- Apply with a bank that uses Experian: Must apply for credit with a financial institution that uses Experian
In our conversation with Shellenberger, we asked him about the necessary steps after a consumer meets that criteria and he said:
“A lender would invite a consumer who is in the process of applying for credit to participate in the UltraFICO scoring process. This would most likely occur if the consumer was unscorable with the traditional FICO score due to sparse or stale credit bureau data or if the consumer had a FICO score that fell below the score threshold for a desired product or credit terms.
“Once the consumer accepts, a score inquiry is made to Experian. In a digital origination environment, the consumer would be directed to a secure site to answer questions about their existing DDA banking relationships. This would entail providing their account credentials required for the data aggregator (Finicity) to obtain the consumer’s transaction history.”
Remember, this score is not yet available at a wide variety of lenders and financial institutions as it’s just being rolled out. By filling out FICO’s sign up form, you can receive more information and notifications once UltraFICO is available.
How the New UltraFICO Score Is Calculated
The UltraFICO score will only be calculated once a consumer decides to opt-in and offer their personal bank account information. By allowing Finicity to collect information from your DDA accounts, you can increase your credit score based on indicators of responsible financial behavior. These indicators include the age of your accounts, how active your bank accounts are with deposits and withdrawals, and how much money on average you have in your savings account.
FitSmallBusiness interviewed Alex Lintner, president of consumer information services at Experian, to discuss how the new score will be calculated. The exact algorithm and scoring criteria have not been shared with the public. Lintner addressed from a high-level what Finicity looks for, and he said:
“With the UltraFICO Score, a consumer grants permission to contribute information from banking statements, including the length of time accounts have been open, frequency of activity, and evidence of saving, which can be electronically read by Finicity and combined with consumer credit information from Experian to provide an enhanced view of positive financial behavior.
“The consumer has direct access to this data and, therefore, knows exactly what is being shared. This is the data that is aggregated and input into the UltraFICO Score.”
After your score is calculated, it shows lenders, banks, and credit providers (e.g., phone companies or landlords) how you manage your cash, which isn’t visible on a traditional credit report. By opting in, you can broaden your access to more financing options and favorable terms.
How UltraFICO Scores Differ From FICO Scores
UltraFICO evaluates an individual’s checking, savings, and money market accounts in addition to their credit history. In comparison, the original FICO score relied solely on an individual’s credit history. The UltraFICO serves as a second chance during approval for borrowers who don’t meet the personal credit score cutoff of a certain financial institution. For example, borrowers with personal credit scores below 680 can use this score to boost their existing FICO score.
In comparison, the original FICO is generally used by all financial institutions and is taken into consideration for personal credit cards and personal loans. The original FICO score takes into accounts someone’s personal credit history and how they manage their debt obligations. Both scores, however, are indicative of how likely you are to make timely payments and your ability to handle new debt obligations.
Pros & Cons of the New UltraFICO Score
In 2019, we can expect lenders and financial institutions to implement the new credit score rules, and it can be beneficial to some potential borrowers. The score can enhance your approval chances, help you rebuild your personal credit score, and potentially give you access to more favorable terms. However, only apply for financing if you know you’ll be able to repay your debt easily.
Pros of the UltraFICO Score
The positives of the new credit score UltraFICO are:
- Enhances your approval chances: It expands access to credit for people with little credit history or those with personal credit scores below 680; by weighing non-credit factors, potential borrowers are given a second chance on approvals
- Requires you to opt-in: You don’t have to use the score if you don’t need an extra boost in your personal FICO score; not everyone wants to share their personal banking information and that’s OK; you must opt-in and give permission before any financial institution can use the new score
- Incentivizes good financial behaviors: Since the new credit score system relies on your checking, savings, and money market account information, it’s an incentive for smart money management; having cash and understanding how to manage it is just as important to managing any debt or credit obligations
Cons of the UltraFICO Score
The negatives of the new credit score UltraFICO are:
- Doesn’t let you shop around for other offers: If you opt-in with a participating lender, your adjusted personal credit score will only be good for that approval process; you won’t have the ability to shop around for other loans or offers with your adjusted score
- UltraFICO supplements your credit history: Since it only evaluates a borrower’s cash on hand, it won’t build a full credit profile like the original FICO score does; because this serves as supplement data to your credit history, you should still work on improving your traditional credit score
- Doesn’t benefit prime credit borrowers: You won’t get bumped into a different credit rank category, and potentially benefit from lower rates and better terms if you’re already considered a prime borrower
Frequently Asked Questions (FAQs) About UltraFICO
We covered a lot of information about the new credit score changes and the UltraFICO score. There are some questions that are asked more often than others, and we address those here. If you have any other unanswered questions, please feel free to share them in the FitSmallBusiness forum, and we’ll provide an answer.
How Can You Improve Your Personal Credit Score With UltraFICO?
UltraFICO gives people a second chance at approval when applying for credit with a lender who uses Experian. If you miss the approval cut off, you can opt-in through a participating lender. You must have an average balance of $400 in your saving account and no negative account balances over the last three months.
What Is the New FICO Scoring System?
The UltraFICO score is a way that potential borrowers with personal credit scores below 680 can access credit and financing. It will factor in checking, savings, and money market account information. Through an evaluation of how consumers manage their cash, the new credit score can adjust their personal score by 20 or more points.
How Is UltraFICO Different Than a FICO Credit Score?
The original FICO score relies on your credit history, while UltraFICO uses your personal banking information to adjust your existing FICO score. If you’re denied, you can have a participating financial institution pull your UltraFICO score for a second chance at approval. However, this will only adjust your current personal credit score for this approval.
The Bottom Line
The new credit score rules coming in 2019 can widen the pool of borrowers who can access financing. Through an evaluation of your personal bank accounts and money market accounts, this score can be your ticket to a second chance at approval. The score’s pilot program is set to roll out early this year and will be made more widely available in mid-2019.