Credit scores for decades have been based mostly on borrowers’ payment histories. That made other financial information useless when looking to get a loan or a new credit card. Now, Fair Isaac Corp, creator of the widely used FICO credit score, plans to roll out a new scoring system in early 2019 that factors in how consumers manage the cash in their checking, savings and money-market accounts. This is the biggest change for credit reporting and the FICO scoring system since it was created in the 90s.
The new score will be called the UltraFICO Score. It isn’t meant to weed out applicants. On contrary, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions. Steady deposits for example will likely be an indication that you have continuous income and are able to repay a loan.
Those who don’t overdraw long-established accounts with at least several hundred dollars in them could see their credit scores go up under the new framework, according to The Wall Street Journal.
This new score has the potential to improve credit access for the majority of Americans and is particularly relevant for those who fall in the grey area in terms of credit scores (scores in the upper 500s to lower 600s) or fall just below a lender’s score cut-off. Consumers who are relatively new to credit with limited history or those with previous financial distress that are getting back on their feet stand to benefit the most.
The new score, in the works for years, is FICO’s latest answer to lenders who after years of mostly cautious lending are seeking ways to boost loan approvals. The model developed by FICO will be implemented through Experian and integrated into a lender’s existing operational workflow. Borrower data will be aggregated through Finicity.