Experian, FICO, and Finicity to Launch the New Ultra FICO Credit Score

The new credit score is said to bring improved access to credit, giving the consumer more control, more flexibility, and more convenience in the credit scoring process. Lenders and FinTechs are set to pilot the program.

Most Americans have been subjected to the FICO credit scoring system for a measure of their creditworthiness. The score has traditionally been calculated based solely on information from a person’s credit report. The precise calculation of the credit score has always been withheld by the credit reporting companies to protect against people manipulating the data.

FICO recognizes that there is more to creditworthiness than just what appears on a credit report. Thus, in collaboration with Experian and Finicity, FICO has devised a new scoring system that will help individuals build credit for the first time, or even to improve their ability to obtain credit, regardless of their credit history.

Introducing the Ultra FICO score

The new score leverages account aggregation technology and distribution capability from Experian and Finicity to help improves consumers’ access to credit by tapping into consumer-contributed data, such as checking, savings, and money market account data, that reflects responsible financial management activity.

With the Ultra FICO score, information about your personal finances can become a part of your credit score. Maintaining a good balance in your bank accounts, having a longstanding history with a bank or a credit union, and maintaining a savings or money market account can boost your Ultra FICO score. The score also takes into consideration monthly bill payments for utilities, cellphones, and other minor bills that do not show up on credit reports.

Credit access made easy with Ultra FICO

Experian, FICO, and Finicity estimate that the new score has the potential to improve credit access for the majority of Americans. It will become mostly relevant for people falling in the fair or poor credit score categories (scores in the upper 500s to lower 600s). Also, consumers who are relatively new to credit with a limited history or people with previous financial distress stand to benefit the most from Ultra FICO.

“This changes the whole dynamic of the lender and customer relationship,” said Jim Wehmann, executive vice president, Scores, at FICO. “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. It’s a game changer.”

 

The program will launch as a pilot program in early 2019. This phase is designed to validate the score and assess the willingness of consumers to share financial data for a potentially higher score. Participants in this pilot program were sourced from across various lines of businesses. The model developed by FICO will be implemented through Experian and integrated into a lender’s existing operational workflow.

On the other hand, borrower data will be integrated with Finicity. The Ultra FICO score builds off of the framework of the base FICO score and is designed to reflect the same odds-to-score relationship so that the new score can be easily integrated into the lending strategies and origination/account management systems. The developers speculate that the Ultra FICO score will be broadly available to lenders by mid-2019.

“This approach allows Americans to benefit from positive financial behaviors,” said Steve Smith, CEO, Finicity. “We are proud to have created a new way for consumers to share financial information safely and securely so that a new Ultra FICO Score can be created.”

The need to change the FICO score

The FICO score recognizes that the people who are just starting out may not have anything on their report, meaning they do not have a credit score. This makes it very difficult for them to obtain a new line of credit. The Ultra Fico recognizes that many people make wise decisions with their banking and monthly bill payments, and that those decisions should be rewarded.

FICO estimates that the new Ultra FICO scoring system will give credit scores to about 15 million consumers who do not currently have any rating at all. It is estimated that about 70% of consumers with a good banking history, on-time monthly payments, and no negative balances in the last three months will see an improvement in their score.

Ultra FICO and your credit report

The score will not be visible as a part of your credit report. The information used to calculate the Ultra FICO score is not the information that is reported to the credit bureaus. If the lender uses the Ultra FICO scoring system, they will be able to see the adjusted score that accounts for these new measures.

Note that FICOs score will still be partially based on credit reports. However, factoring in the new information from bank and utility payments, original FICO credit scores may be significantly boosted. However, if your balances reflect negative activity, this may decrease your score.

Conclusion

This new score may cause frustration to lenders; there is a high possibility of a stream of litigations waiting ahead. The request for data is blurring the lines between the perceived “risk” model and lender underwriting. FICO is taking a huge step towards becoming a depository of information, more like a consumer reporting agency, bringing forth stringent regulation from FCRA, FACT, ACT and many others. There is also a huge possibility that FICO could be sued for discrimination, because it is one thing to match the size of a loan to someone’s financial capabilities, and another thing to imply that someone with a small savings account is somehow less creditworthy. Going from an algorithm-based system to a big data analytics company may prove to be a risky move in the long run.

Sources:

https://www.fico.com/ultrafico/

https://www.igrad.com/articles/how-the-new-ultra-fico-score-could-affect-you

https://www.experianplc.com/media/news/2018/experian-fico-and-finicity-launch-new-ultra-fico-credit-score/