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.
