Money Health

What Is UltraFICO and How Is It Different?

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The FICO Score has been the standard language of the financial services industry for some time. But if you haven’t heard, a new score called UltraFICO has been released and is generating a lot of buzz. But should you believe the hype? Let me walk you through the details so you can decide for yourself.

What is UltraFICO?

UltraFICO is a new version of the FICO Score that augments traditional credit bureau information with consumer-volunteered banking information. In other words, it takes your “vanilla” FICO Score that is based on your “typical” credit history—think credit card, mortgage, auto, etc. credit history—and adds a little chocolate syrup by including information from your bank account.

A unique aspect of the bank account information is that you control whether or not you want to provide it to the lender. If you don’t want to share it, the “vanilla” FICO Score is used. If you do choose to share it, the UltraFICO Score will be used.

How does UltraFICO work? 

First, a lender invites a consumer applying for credit to opt into the UltraFICO Score process. If the consumer agrees to share their banking information, a company called Finicity compiles the banking information and then securely passes that to Experian, which will then call the UltraFICO scoring process. The scoring process adjusts the FICO Score up or down, based on the banking information the consumer authorized through Finicity. Again, if you don’t want to share your banking account information, you don’t have to.

What does UltraFICO Mean for Me?

I know, you’re probably thinking the last thing the world needs is another version of the FICO Score, but I firmly believe the release of UltraFICO is a good thing. Why? If I were to geek out to you, I would first say that the bank account information is highly orthogonal—that is, it contains a lot of unique information that you wouldn’t necessarily find on your credit report. That orthogonal data can only help the score assess credit risk more effectively. With the UltraFICO, lenders are armed with a credit score that can make better lending decisions that could help decrease losses.

Now here’s the rub:  in a competitive market, the cost savings from better lending decisions can be passed to the consumers through lower interest rates. Basically, what this means is that UltraFICO can increase the accessibility of credit and/or decrease the cost of credit.

Here are two factoids that might get you jazzed: 

  1. FICO says that over 15 million consumers who don’t currently qualify for a valid FICO Score would now be ‘scoreable’ with UltraFICO.
  2. FICO also says that 70% of consumers who have an average savings balance of $400 and have never had a negative balance in their bank account within the past three months have a higher UltraFICO Score than their “vanilla” FICO Score.

Pretty cool, huh?

What’s the Catch?

If it sounds too good to be true, here’s where reality differs from fantasy. From my perspective, the biggest downside to UltraFICO is that banks need to rigorously test before they implement new technology. They have sophisticated strategies they need to fine tune because of the new score. And let’s not forget that integrating a new data source is not a trivial exercise for an engineering team. So basically, that means that a little time needs to pass before UltraFICO may be able to make a difference to you.

Secondly, UltraFICO is only available at one of the credit reporting agencies right now. So if the lender you are applying credit from is using data from Equifax or TransUnion to decide whether they should lend to you, then UltraFICO isn’t likely to help you. Hopefully, the interest is there and eventually UltraFICO will be offered at the other two bureaus.

Lastly, I suspect UltraFICO may have the biggest benefit for consumers who have a limited credit history, like younger people who may not have an extensive history of credit cards or other credit products. For consumers who have a rich credit history, UltraFICO could help, but likely not as much.

So, my final verdict is that the release of UltraFICO is great news, but that your optimism should be tempered by the time it takes for widespread adoption.

Freddie Huynh is a financial expert specializing in credit health, credit risk, and consumer credit issues. He spent over 18 years at FICO, where he oversaw the development, maintenance, and analytic support for FICO Scores in North America. At Freedom Financial Network, he leverages his deep understanding of consumer credit to develop credit decision-making policies that produce the best outcomes for both borrowers and lenders. He is dedicated to helping consumers improve their financial well-being by educating them about how credit impacts their daily lives.