FICO’s New Credit Score takes Banking Activity into Account Boosting Consumers’ Scores

Fair Isaac Corp. the company that invented credit scores, announced a new credit scoring system based partly on consumers’ bank account activity. Heretofore, credit scores ignored consumers’ bank activity. The new score called UltraFICO Score is not meant to weed out persons applying for credit. Rather, it is meant to improve credit scores for those who maintain a bank balance and who avoid overdrafts.  FICO is doing so on the theory that such persons are more likely to repay their loans.

According to a WSJ article, the UltraFICO score will function as an appeal of sorts, boosting many applicants with less-than-ideal records. If an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity. Would-be borrowers with at least several hundred dollars in their accounts, who have had the accounts for a while and who transact frequently and don’t overdraw are likely to see their scores rise according to FICO.  Lenders have been asking FICO to figure out a way to help them boost lending without taking on significantly more risk.

Of U.S. consumers with FICO credit scores, 58.2% have a score of 700 or higher on a scale that tops out at 850. The average FICO score is at a record 704. Experian considers scores under 670 subprime.

Experian will compile consumers’ banking information with help from financial-technology firm Finicity and will distribute the new score to lenders. The credit-reporting firm also will send lenders a report that includes a summary of the consumer’s bank accounts.

 

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