Fair Isaac, creator of the FICO credit score, will be rolling out a new scoring system in early 2019.
According to the Wall Street Journal, the UltraFICO Score should help many consumers get approved for loans because it factors in how consumers manage the cash in their checking, savings and money-market accounts, which could serve as an indication of how likely they are to repay their debts.
FICO explained that consumers with at least $400 in their accounts — who have had the accounts for a while, make regular transactions and don’t overdraw — are likely to see their scores rise. In addition, applicants will be able to choose which accounts they want used to recalculate their scores.
FICO revealed that it is in discussions with several lenders, including banks and financial-technology firms, that have expressed interest in using the new score in a pilot.
Currently, a record 58.2 percent of U.S. consumers with a FICO score are at 700 or higher on a scale that only goes as high as 850. The average FICO score is now at a record 704. While lenders have different cutoffs, Experian considers scores under 670 subprime.
FICO said about seven million applicants who have low credit scores due to limited borrowing histories will probably see their scores improve under the new system. And around 26 million subprime borrowers will end up with higher credit scores, with nearly four million seeing a boost of at least 20 points.
David Shellenberger, FICO’s senior director of scoring and predictive analytics, pointed out that the new score aims to prevent risky borrowers from appearing more creditworthy by focusing on positive financial behavior that was previously ignored.
FICO is “very focused” on its “ability to separate future good borrowers from bad borrowers,” he said.
Experian will compile consumers’ banking information with assistance from FinTech company Finicity. The new scores will then be distributed to lenders.