For an adult, a credit score is an important factor in whether or not you can get a loan or a credit card with a decent interest rate. It's also a factor in determining whether or not you can rent an apartment or how much of a deposit you need to put down on services like cell phones and utilities. Generally, the higher your number, the better credit you supposedly have.
However, the way credit scores are currently calculated--looking at your payment history, how much money you owe creditors, how long you've had credit, the type of credit you have and any new credit--don't necessarily tell an accurate story on whether or not you're creditworthy. If you're someone who's shied away from using credit cards and haven't applied for a house or car loan, it might be difficult to prove your creditworthiness and could cause you to get less-than-favorable rates or perhaps even denied.
That could change. Coming in 2019 is a new type of credit score called UltraFICO that leverages other aspects of your financial behavior, such as checking, savings and money market account information, to help determine your credit score.
A venture of credit bureau Experian, financial information aggregator Finicity and credit score provider FICO, UltraFICO will tap consumers' other financial information to enhance their overall credit score.
UltraFICO is an opt-in service, so users have to give it permission to have access to their banking statements so that it can look at how long they've had their accounts open, how often they're using their accounts, and whether or not they're saving money. Finicity's tools then combine this information with their Experian credit history data and churn out an enhanced view of their credit score.
The three companies hope that this tool improves credit access for those who have difficulty getting credit or have been trying to increase their credit score after a personal financial disaster. It's targeted to help those whose current score is in the high 500s to low 600s, which is the subprime category of credit scoring.
"This changes the whole dynamic of the lender and customer relationship," said Jim Wehmann, executive vice president, Scores, at FICO, in a statement. "It empowers consumers to have greater control over the information that is being used in making credit risk decisions. It also enables a deeper dialogue between the consumer and lenders to help both parties make better financial decisions. It's a game changer."
FICO notes on its website that this could make life easier for about millions of Americans whose credit histories are so thin that they can't get a credit score at all. The company claims that seven out of ten consumers who can prove they're financially responsible through their checking and savings accounts can benefit from the UltraFICO tool. People who already have good credit may not benefit from this service. The FDIC indicates that other ways to measure creditworthiness could be helpful to those who currently may look like they're not good candidates on paper. In a recent study, the FDIC found that households which stay current on bills is a potential indicator of creditworthiness, noting that that three-quarters of households that didn't have access to regular credit stayed current on bills within a 12-month period.
While UltraFICO might help more people get access to credit on better terms, it could also mean that more consumers could get into a debt trap. Consumers who do end up using UltraFICO should be aware of how credit and interest payments work before trying to borrow money.
However, they have time to learn, as UltraFICO won't be available for several months yet. It will first go through a pilot program in early 2019, with plans to roll it out nationally next summer.
