SAN JOSE, Calif.–Fair Isaac Corp., creator of the FICO credit score, said it will introduce a new scoring system in early 2019 that factors in how consumers manage the cash in their checking, savings and money-market accounts.
At least one credit union has been involved in discussions over using the new score as part of a pilot test.
The new model would be among the biggest shifts for credit reporting and the FICO scoring system since the 1990s, noted the Wall Street Journal in its analysis.
“The UltraFICO Score, as it is called, isn’t meant to weed out applicants,” the Journal reported. “Rather, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions, which could indicate how likely they are to repay.”
The new score has been in development for several years, and is being offered in response to lenders who are seeking ways to boost loan approvals, according to the report.
“The UltraFICO score will function as an appeal of sorts, likely boosting many applicants with less-than-ideal records,” the Journal stated. “If an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity. Would-be borrowers with at least several-hundred dollars in their accounts, who have had the accounts for a while and who transact frequently and don’t overdraw are likely to see their scores rise.”
Applicants will be able to choose which accounts they want considered when the score is recalculated, according to Fair Isaac.
FICO Scores at Record Level
Among the institutions that have been in discussions about piloting the new score is Pentagon FCU (PenFed) in Virginia. Other lenders, including some fintechs, have also been involved, the Journal reported.
Data show of U.S. consumers with FICO credit scores, a record 58.2% have a score of 700 or higher on a scale that tops out at 850. The average FICO score is at a record 704. Lenders may have different cutoffs, but Experian considers scores under 670 subprime.
According to the Journal, FICO said about seven-million applicants who have low credit scores as a result of thin borrowing histories would likely see their scores improve under the new system. Separately, some 26 million subprime borrowers will end up with higher credit scores, FICO said, with nearly four million seeing an increase of at least 20 points.