Experian, FICO and Finicity announced a new credit scoring model that could expand credit access for millions of Americans.
The UltraFICO Score, a refined consumer credit scoring product that Fair Isaac Corp. plans to pilot in early 2019, promises to help make credit available to more individuals who show “responsible financial behavior” but are locked out of mainstream credit because they fall short in traditional scoring mechanisms. It also promises to help individuals improve their current FICO scores, which has long been the benchmark for determining the creditworthiness of individuals.
While the UltraFICO would certainly expand financial inclusion, consumers must be wary of inscrutable offers of credit and learn how exactly they could protect their data, according to experts at Wharton and the University of Utah.
According to FICO, the new model will expand access to credit.
Consumers will need to grant the credit reporting agencies access to their bank statements under the new model. As a result, the agencies will be able to see how long their accounts have been open, the frequency of their account activity, and evidence of their saving. Fincity will read the data electronically and combine this with Experian’s consumer credit information.
“This approach allows Americans to benefit from positive financial behaviors,” Finicity CEO Steve Smith told HousingWire. “We are proud to have created a new way for consumers to share financial information, safely and securely so that a new UltraFICO Score can be created.”
Experian, FICO and Fincity say the UltraFICO model will benefit consumers with credit ratings in the upper 500s to lower 600s most of all. In addition, those with a limited credit history or previous financial problems could also benefit.
“This changes the whole dynamic of the lender and customer relationship,” said Jim Wehmann, FICO Scores executive vice president. “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,” Wehmann continued. “It’s a game changer.”
The plan is for UltraFICO to be launched as a pilot program in early 2019, in order to assess consumer’s willingness to share their banking information. Participants for the pilot have already been sourced across a range of lines of business.
“As the consumer’s bureau, our goal is to help empower consumers and to give better access to credit for more consumers, all while promoting fair lending,” said Alex Lintner, Experian president of consumer information services. “Through this project, we’ve found a new way to use consumer-permissioned data that allows lenders to make better decisions and helps consumers gain access to credit.”
Clearly, millions may benefit with new and expanded access to credit as a result of this big change to the scoring model. Of course, we should note that getting credit is a double-edged sword.
On the one hand, having great credit will unlock a world for you where you get lower rates on insurance premiums, enjoy more favorable interests rates on mortgage and auto loans and more.
On the other hand, it’s easy to burn yourself financially by paying interest if you can’t pay your credit card bill in full each and every month.
That’s why money expert Clark Howard has always stressed both the opportunity and the hazard inherent in obtaining credit. “It’s important to remember that getting credit requires you think through how you’re going to use it,” he says.
“If you know that you’re the type of person who is going to use any credit you may get and not be able to pay back your debts, forget everything I’ve said about why you need to have credit. For you, having credit is simply too dangerous and you should live on a cash basis.”
The Wall Street Journal reports that Fair Isaac doesn’t envision UltraFICO as a red light to stop borrowers from getting credit. In fact, it’s the other way around; they hope UltraFICO will be used by lenders as a green light to increase the number of people with approved credit applications.
More information: Will UltraFICO Help Expand Credit — or Create Greater Risk?