2019 is just around the corner and with it FICO is introducing it's newest algorithm to score credit, UltraFico. The Fair Issac Corporation (FICO), since 1956, has generated hundreds of different algorithms. This upcoming year will be the first time that FICO will incorporate consumer contributed bank information to calculate a credit score, and here's what you should know:
The program will start as a pilot. Only a handful of lenders will first be allowed to give their clients access to the UltraFico algorithm. As the data comes in and they can verify the efficacy of the program - I will become more widely available.
Individuals will have to opt-in. Unlike most credit which comes with your credit card or other form of debt. UltraFico will be a choice that consumers may opt for, through their bank account. It will give FICO access to an individuals bank account history and transactions in order to give the consumer a credit score.
It will give 15 million people a credit score for the first time. According to FICO's estimates, 15 million people will receive a credit score for the first time who previously fell under the radar of traditional credit scores. I like to call these folks the Dave Ramsey followers - the folks without credit cards, auto loans, or personal loans - who have good evidence of savings. UltraFico determines credit based on (4) primary factors. UltraFico will make a credit determination based on a consumers bank account information giving the following 4 factors:
1) Evidence of Savings. FICO estimates that 70% of consumers who opt-in to UltraFico will see an increase of their score if they are saving $400/mo over the last (3) months. The dollar amount was most likely just used more for example purposes because FICO cannot discriminate on the basis of wealth so more than likely they are monitoring a relative growth in savings over the last three months.
2) Maintaining a positive balance. UltraFico will want to be sure you have not had any overdrafts in the account.
3) Evidence of paying bills. UltraFico will monitor transactions that occur in your bank account to see that there is evidence of bills being paid using the account.
4) Maintaining an account over time. In textbook FICO form, it will look at the amount of time your bank account has been open and active to factor into the determination of your UltraFico score.
Should you opt-in to FICO? My recommendation is, probably not. Overall, the program will be a benefit for some, but not really for most. The real winners of this are going to be the individuals who are looking to purchase a home and have no verifiable credit otherwise. For these folks, I still would recommend building some traditional lines of credit so that they will not have trouble qualify for a mortgage in the future, or qualify for a loan in the event of an emergency. Sometimes, there is just no alternative to building your credit.
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