A few weeks ago, Fair Isaac, the company behind the popular FICO credit scoring system, announced that they are in the process of designing and developing a new scoring model. This new model, called UltraFICO, is slated to launch some time in 2019. And while the details regarding performance and market adoption are not yet known, there are some things we do know about this new scoring system.
Your garden variety FICO credit scores (yes, you have many) are all based on information solely on your credit reports. If it’s not on your credit reports then it doesn’t influence your credit scores. UltraFICO, however, will consider information that is not on your traditional credit report as maintained by the so-called “Big 3”: Experian, TransUnion and Equifax. This is a radical departure from FICO’s normal credit score structure.
UltraFICO will consider, with your permission, information about your deposit accounts. This could include your checking, savings and other deposit accounts. The hypothesis is how you manage your cashflow is predictive of your credit risk, kind of. Wealth metrics, like how much money you have in your deposit accounts, has long been a measurement of capacity rather than creditworthiness. Capacity is your ability to make a payment, creditworthiness is whether you’ll choose to do so.
According to FICO, if you have a large enough balance and you don’t go into a negative position you may see “an increase” in your FICO score. If your scores are slightly below a lender’s minimum score requirement or “cut off” then a slight increase based on your cash management could push you over the line into an approval position.
So far this all sounds great, right?
Well, there are some things to consider as a consumer who may someday be asked if you’d like your bank or credit union to have UltraFICO weigh your deposit account performance. The first thing to keep in mind is that this is largely only helpful for subprime borrowers who are arguably not really creditworthy under our current and traditional underwriting processes. If a bank requires a minimum score of 600 (which is about 100 points below the national average) and you are stuck at 590 then UltraFICO may get you the points needed for approval.
The question is, was that a good idea? 590 is a very poor score, and so is 600. From a lending perspective all I did was to approve an applicant who is a severe credit risk by using the balance in a deposit account as a supplemental decision tool. If that’s predictive enough to turn a denial into a “barely” approval then so be it.
The next thing to keep in mind is data security, your data security. In the time it will take you to read this article some database will be hacked. UltraFICO will consider information that you will allow it to consider. You will be asked to provide the username and password for your deposit accounts so your information can be accessed, just like if you were logging into your bank accounts yourself. This process is called screen scraping.
Screen scraping isn’t new and this isn’t to suggest that it’s inherently unsafe or unsecure. But, I am telling you that you’ll be asked to provide your usernames, passwords and/or PINs to a company you’ve probably never heard of so that they can log into your accounts as if they were you and access your balance and banking transaction data. This data will be used by UltraFICO as a basis for their score. Ask yourself, “How do I feel about giving out this information?”
Finally, and equally important, it appears the UltraFICO score will only be available, at least initially, to lenders who use Experian as their source of credit report and FICO score information. This is a big deal for a variety of reasons.
First, this excludes 100% of your lenders that choose to use Equifax and TransUnion for their credit reports and scores. Second, the “Experian only” limitation means UltraFICO has no value for your mortgage applications as mortgage applications are underwritten using all three of your credit reports, not just one. That’s not FICO’s fault or Experian’s fault…that’s simply a requirement that has long since been deployed by Fannie Mae and Freddie Mac.
And finally, 100% of your lenders who choose to use a score that isn’t a FICO credit score won’t see any value in UltraFICO. That image you see growing bigger in your rear-view mirror is the VantageScore credit score, which is now 12 years old. Some 2,800 financial institutions use VantageScore and roughly 10.5 billion (yes, that’s billion with a “b”) of their scores were used between July 2017 and June 2018.
In summary, using noncredit-report data to help with the risk assessment process is an interesting concept. FICO doesn’t build models to occupy their time, they do so because they have found value in the data. The question, as it always is with new credit score concepts, is will the market choose to buy them, and to what extent?
John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 15 years. Formerly of Equifax and FICO, Ulzheimer, who appears regularly on national news networks, is the only recognized credit expert who actually comes from the credit industry. He has been an expert witness in over 325 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.