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Here’s some good news to start the week: Your credit score may look a lot better next year.
A new type of credit score known as the UltraFICO is debuting in early 2019 and will take into account how consumers manage their cash — not just their credit — when determining their credit score.
This is a huge shift for credit scores, which previously took into account only consumers’ history with credit or borrowing, making it difficult for those just starting to build credit or who don’t use credit cards to qualify for loans.
The UltraFICO’s scoring model takes into account how consumers manage their cash in their checking, saving and money market accounts, and is meant to help people better qualify for loans.
Here’s how it could work: Let’s say you’re applying for a loan but your traditional FICO score is considered subprime (this varies by lender but at Experian, for example, it’s anything under 670). Instead of rejecting your application, the lender can request to have your score recalculated under the UltraFICO scoring model.
According to FICO, those with an average balance of at least $400 who haven’t overdrawn from their bank accounts in the last three months will likely get a boost to their score. It estimates that about 26 million subprime borrowers will see improved credit scores.
Fair Isaac Corp., the creator of the FICO score, has been working to boost scores for years to try to help lenders looking to increase loan approvals. Last year, it moved to exclude tax liens and civil judgments from credit reports, which may have led to a boost for about 12 million scores. Prior to that, it changed how medical bills are taken into account, putting less weight on those that fell into collections, and excluding accounts that had been paid or settled with a collection agency.
But, don’t rely totally on the UltraFICO to improve your credit health. It’s still important to manage your loans and lines of credit well, such as by making sure you always make your payments on time. If you’re looking for additional ways to raise your credit score, these tips can help.