Fair Isaac Corporation is the creator of the most commonly used credit scoring models, called ‘FICO Scores‘. The different variations of these scores are used in 90%+ of lending decisions. Existing scores primarily focus on an individuals repayment history, although these scores also look at things such as credit history length and types of credit use (e.g installment/revolving). According to the WSJ FICO plans to release a new scoring model called ‘UltraFICO’.
The idea behind UltraFICO is to allow lenders to lend to more borrowers by taking into account an individuals history of cash transactions. UltraFICO will be an optional extra that lenders can use when an individual is denied based on their traditional FICO score. UltraFICO will look at things such as:
- Current checking balance
- Length of checking history
- Transaction frequency
- Overdraw history
Individuals will be able to choose which checking accounts they want to be considered when scores are recalculated using UltraFICO. As with any change to credit scoring models how successful this will be will depend on adoption rates and how this scoring model does at predicting credit worthiness. It seems strange that the loan applicant gets to choose which checking accounts are considered, if you have overdrawn from an account before then you’d obviously want to exclude that account. It’s also not clear where FICO plans to get the checking data from in the first place.
Thankfully this shouldn’t affect those of us who churn bank account bonuses as this is a secondary scoring model that is only used when you would have originally already been denied. Given that you can choose the accounts it scores based off as well, you would simply pick your accounts with a healthy balance that you’ve had for a long time with no overdraw history.
6 banks were using deposit-based underwriting to offer subprime credit up until 2013. The regulators shut them down because they did not understand the products.
That product was called Deposit Advance, which did the systematic underwriting and the pricing, which was fixed for anyone that qualified. It was (still is at one regional bank) not a card, it was a line of credit linked to a checking account. The customer moved the money from the line to the checking account, then paid back the borrowed amount from a future direct deposit.
UltraFICO is very close where it does the systematic underwriting based on deposit activity and most likely makes a pricing recommendation based on score. Deposit activity provides almost real-time data to make credit decisions. Negative balances, overdraft occurrences and active direct deposit are some of the criteria. Violate one of those covenants and the line goes into suspension.
Lenders are still stuck by as far back as FICO 04. We probably still have a lot of time until these new scores go mainstream.
For the Love of God and All that is good and decent….Please… I am Begging you…please… get a CLOSER LOOK AT THIS ULTRAFICO Con Job and Get the Word out.
The list of nasty people ( and Organizations ) that would LOVE for All of us to Freely give UNFETTERED ACCESS to ALL of our day to day transactions is ENDLESS. Think about it…. do you Really want everyone on Planet Earth to have Free and full access to ALL your Monthly Bank Statements ???
ULTRAFICO is the Wholesale Slaughter of that Final piece of YOUR PRIVACY. PLEASE….GO ask an Actual Criminal if he ( or she ) would like to have UNFETTERED ACCESS to your ( and everyone’s ) Monthly Bank Statements. Then be prepared to administer CPR when the Actual Criminal falls down laughing with Glee and Cannot even Catch their breath.
Someone PLEASE !!!! SOUND THE ALARM on Social Media to prevent This Nightmare…. this EVIL Final Invasion of PRIVACY !!
Wow, this is really scary! When Equifax got hacked and your social and account numbers were exposed, I do not think that checking information was included.
If it was, what would keep those that got access to this to sort by the highest balance and proceed to try to socially hack or brute force your bank account and draw out the money?? Yes, your money is insured but have you recently had to file a claim?? It could take a month or so to get issues resolved.
Dave Ramsey must be joyous to the moon
rip his “0” credit score.
Dave Ramsey has an article on his website titled “Ultra FICO: Ultra Ridiculous”. I guess he’s going to keep his 0 credit score 😀
Great to find out my checking account history is being sold to FICO….so much for “consumer protections”
When I see and read about the various credit and bank account scoring methods, I think back to when I was a kid and my dad would make me buy him the “Daily Racing Form”. In most cases, the numbers in these reports still does not predict whether or not you will be approved for an account; it’s just statistical mumbo-jumbo.
I like it. It’s pretty ridiculous that I don’t have an amazing credit score despite 20 years of perfect payment history with dozens of CCs and 100K+ income. I’m penalized for not having any mortgage or car payments (both are paid for). Friends who have less money and income have a higher score because they have a more diversified payment mix? Like seriously WTF? I’d love if it lenders could see that I have $50K in my bank account.
It just means that actually paying a variety of loans is a better predictor of credit worthiness than having a bunch of money. The key thing to remember is it’s just a basic math model and not “the truth”
There are some easy ways to increase your diversified revolving credit mix that cost only a few dollars worth of interest. You can get a personal loan thru a credit union (even $500 will work), pay it down to 9% of the balance or even less (maximum score boost at <= 9%), then do automatic payments for the balance over the full term of the loan (so you get the score bump as long as the loan is open).
I saw first saw the technique discussed on MyFico forums:
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secure-technique/td-p/4506756
I asked my credit union about this. I paid off half my 1,000 loan in the first month. I was going to pay $43 instead of $85 a month. The credit union said if I paid less than the $85 a month, it would negatively impact my credit report. The only way around it was to refinance according to the credit union. So, now I’m just going to pay the $85 a month until the loan is paid off in 6 months. If I’d have known this would be a problem before I applied for a loan, I would have gotten a 2 year loan, so the monthly payment was half the amount. Then, I could have paid it off in 1 year instead of 6 months.
Agreed Mike. What you said is exactly me. I would have expected my credit score to be a solid gold 850. 20 years credit history, not a single late payment. Today could max out every open CC card and pay it off in cash tomorrow. Credit score about 780. A sham.
“It seems strange that the loan applicant gets to choose which checking accounts are considered, if you have overdrawn from an account before then you’d obviously want to exclude that account.”
It sounds like the target market for this is not going to be high-income churners with a bunch of bank and CC accounts. I’d expect the vast majority of the country only have 1 checking account, and it’s probably much rarer for people with low credit scores to have multiple checking accounts; that demographic is probably more likely to have none at all (‘unbanked’).