UltraFICO Woos Underbanked Thin Credit Files

Credit Scoring has always been more about how you handle your finances than how much money you have.  It is not uncommon for a minimum wage earner who is careful with his finances to have a higher Credit score than a top Executive or professional who likes to live beyond their means.  Some low income and careful consumers are reluctant to get involved at all with the credit system either because of previous bad experiences or a determined desire to keep their business private.  Such people are left in a bad spot when the time comes to measure their credit score to buy a home or auto.  They are said to have “thin” credit files.  There is not enough information on record for the credit scoring computer to make accurate predictions.  The result is a subprime score that fails to make the cut for the credit applied for or fails to qualify the consumer for better terms.  Enter UltraFICO score.

FICOXD evolving into UltraFICO Score

FICOXD is evolving into a program called UltraFICO designed by a partnership including FICO, a technology company called Fintech and credit reporting agency Experian.  It aims to cultivate those consumers whose low credit score does not represent their true credit risk.  FICO’s website says they are reaching out to the “underbanked, the self employed, millenials, immigrant entrepreneurs and migrant savers and remitters.”  Applicants may be rebuilding after a personal one time only financial setback.  FICOXD is an attempt to reach the under served community of consumers who fall through the cracks of the traditional credit scoring system.  They may not have any bank account.  They may cash their pay check at the corner store.  They may budget monthly expenses with little envelopes in the cookie jar…but they may be as dependable at paying their bills as any lender could ask for.  FICOXD has never achieved widespread use.  It has always seemed like a good start to a better program in the future.  FICO thinks their new UltraFICO score is that better plan that has long been needed for marginal credit scorers.

Components of UltraFICO Score

To qualify for an UltraFICO score, which is still only a pilot program, consumers will need:

• A checking, savings or money market bank account with reasonable age since its opening that maintains an average balance of at least $400.00
• No bounced checks in the previous 3 months
• Few if any collections on record
• Transaction frequency
• Regular payment of bills and other transactions

The UltraFICO score program is unlikely to give an additional boost to those who already have a good credit score.  Consumers who are ready to take the leap and opt in for this service when it becomes available in selected areas in 2019 should remember that it is a two edged sword.  Bounced checks and overdrafts by them will now be matters of record.  An UltraFICO score has the potential to hurt a credit score as well as help it.

Factoring in how consumers manage the cash in their checking, saving and money market accounts is a new concept in credit scoring.  Realistically speaking, based on past history of credit scoring changes, this system will take years to become available to the general population.  Software updates on this scale are expensive and  lending policies with many lenders are very rigid and resistant to change.  Credit scores can be improved greatly by other efforts with the right guidance.

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