Buzz
FICO's new UltraFICO score, launched in 2019, promises to be a game changer for consumers with limited credit histories. However, while it could benefit some, others may want to think twice before joining this new scoring system.
Here’s a brief overview of how it works: If someone has a short credit history or a few blemishes on their credit report, they can ask lenders to consider their UltraFICO score, which will be based on their bank account activity instead of traditional credit history. UltraFICO factors in a person’s checking account balance (with a minimum average of $400), the duration of their account, transaction frequency, and history of overdrafts. If you already have a strong credit score or history, this model won’t benefit you.
Although FICO markets this as a win for consumers, some experts are not as enthusiastic. Like any financial product, FICO and credit issuers stand to profit from broadening the pool of customers taking on credit and paying high interest on outstanding balances.
“Incorporating bank transaction data into credit scores could help some consumers improve their credit scores, but it’s important for consumers to approach this program with caution, and government regulators should monitor its rollout closely,” Maureen Mahoney, a policy analyst at Consumers Union, told Consumer Reports.
While extending credit might benefit some consumers, others could find themselves trapped in debt. With over $1 trillion in credit card debt already outstanding, increasing that amount could leave many vulnerable when a recession hits.
Consumers should also be cautious about where they share their bank account information. There's a concern that the new model, by factoring in assets, might disproportionately benefit wealthier individuals.
And don’t expect instant approval for credit beginning January 1. “This offering won’t make you creditworthy overnight,” James Garvey, CEO of Self Lender, a startup dedicated to helping people build credit without credit cards, stated in an email. “The credit score is only used by a small number of institutions, meaning it could take years—possibly decades—before we see any significant changes in consumer credit.”
