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Is the UltraFICO Score Good or Bad for Consumers?

January 6, 2019

When new credit scores are revealed, it shakes up the credit world a little bit. The new UltraFICO score is no exception.

In fact, this score is so different, it has the attention of consumers and just about every credit expert (raising my hand) on the planet. It's intriguing because it gives a certain segment of consumers a little more power over their own credit.

The UltraFICO score looks at financial behavior, such as checking and savings accounts, that has never been considered before for FICO credit scores. FICO has been pretty transparent about how this new score works, and it's being billed as "The Score You Build." 

I do love consumer power, but there's also a potential side effect of this new score that's a tiny bit troublesome. I'll get to that, but first let's take a look at how the UltraFICO score works.

How the UltraFICO Score Works

The UltraFICO score is unique because it's an "opt-in" FICO score. When a lender requests your FICO score from a credit bureau, your score is calculated based on the information that's in your credit file. If you have limited credit or you're rebuilding your credit, then your credit score will probably be too low to get approved for many types of credit. 

In this scenario, the lender can request a recalculation using the UltraFICO score. It's the same number range as the FICO score, 300-850, but the new score considers your banking activity. If you have a score in the gray area, from the upper 500s to the lower 600s, according to FICO, then the recalculation might boost your score enough for you to get approved.

To opt in for a recalculation using the UltraFICO score, you must meet the following criteria: 

  • You haven't had any negative account balances within the last three months.
  • You have an average balance of $400 in savings over the past three months.
  • You are applying for credit with a lender who uses Experian for a credit report and credit score. Experian is the only one of the three major credit bureaus currently offering a recalculation using the UltraFICO score.

FICO estimates that 70 percent of consumers with zero or limited credit and who meet the above account criteria would see their scores rise.

FICO is planning a soft launch of the UltraFICO score in early 2019. This "pilot" phase is designed to determine how well the score works in practice. But it's also a test to see how consumers feel about sharing more of their financial data. The score is expected to be more widely available in the summer of 2019.

What's Good About the UltraFICO Score

If you already have a good-to-great FICO score, this isn't going to increase your score. But it does help a bunch of consumers who fall into that gray area I just mentioned. 

Here's whom the UltraFICO Score helps the most:

  • Consumers with limited or subprime credit, such as young people, new college grads and immigrants. A TransUnion survey from 2015 showed that 43 percent of millennials had subprime credit. Prime credit is a score around 670, depending on the lender.
  • Consumers who are rebuilding their credit scores. This could be due to irresponsible behavior or to circumstances beyond their control, such as a job loss or medical bills.

Let's say you have a 620 FICO score, but your lender requires a prime credit score. The lender looks at your 620 FICO score and knows it isn't high enough to approve your loan or credit card application. If you meet the previously mentioned criteria with your bank accounts, the lender can request a recalculation of your score using the UltraFICO score. 

It's possible that a score redo will help you get approved. It sounds pretty idyllic, right? Well, only if you assume that a traditional FICO score isn't truly representing that consumer's reality. 

But what if the score was right the first time? Let's take a look at the other side of this new score.

What's (Potentially) Bad About the UltraFICO Score

Here's the assumption behind the rationale for this score: If you're doing a great job managing your bank accounts and you have a little savings, then you're a better credit risk than what your "regular" FICO score implies. 

You know what's bothering me? The ability to handle cash well doesn't always translate into handling credit well. I see these as two different skill sets. And having $400 in your savings account isn't a whole lot. There will be some consumers who get approved via the UltraFICO score who really aren't good candidates for credit at this point in their lives. 

Now, I don't mean to be a downer, because I'm truly glad that some deserving consumers will get a chance to shine. And these individuals will be on a path to a great score, including all the benefits that come with having excellent credit. 

But the algorithms for the FICO scores were designed to measure credit risk. The UltraFICO score can be used to basically override the results of the initial FICO score calculation.

There will be times when this works out the way it was intended and it goes well. But I think it's also important to look at the big picture and have realistic expectations. There will also be times when giving credit to someone a little prematurely might not go well at all.