Do you want a higher credit score? Soon your money could help

The UltraFICO score, as it is called, is not meant to eliminate the candidates. Rather, it is designed to increase the number of credit card, personal loan and other debt approvals by taking into account borrowers' history of cash transactions, which could indicate their likelihood of repayment.

The new score, planned for years, is FICO's latest response to lenders who were demanding a way to strengthen loan approvals. This is one of the biggest changes ever in credit reporting and the FICO rating system, the foundation of most consumer loan decisions in the United States since the 1990s.

At present, borrowers have little control over the contents of their credit reports, with the exception of the possibility of challenging information they believe to be inaccurate. Lenders, collection companies and other parties provide historical payment history data to major credit reporting companies,

Experian

PLC,

Equifax
Inc.

and TransUnion, and this information determines the FICO scores of consumers. Lenders, in turn, use FICO scores to make most of their lending decisions.

The UltraFICO score will work as a call of sorts. If a plaintiff's traditional FICO score is insufficient, a lender may propose to recalculate it based on their banking activity. Potential borrowers who have at least several hundred dollars in their accounts, who have had them for some time, and who deal frequently without their accounts being short, are likely to see their scores go up, FICO said. Candidates will be able to choose the accounts to take into account when the score will be recalculated.

FICO said it was in discussion with a handful of lenders, including banks and fintechs, who were interested in using the new score in a pilot project. One of them is the Pentagon Federal Credit Union, the third largest US credit cooperative in terms of assets.

A decade after the frenzy of subprime mortgages has almost knocked down the US financial system, consumer lenders remain cautious about borrowers with a low credit rating.

Banks have spent a good part of the last 10 years looking for highly solvent borrowers. Yet this slice of the market, which has developed in parallel with the improvement of the economy, is widely exploited. Loan losses have increased as lenders have increased at-risk loans in recent years.

As a result, lenders have asked credit reporting companies and FICO to find a way to help them increase their lending business without taking much more risk. And regulators have expressed the desire to explore ways to increase access to affordable loans for consumers who have a low or no credit rating.

Among US consumers with credit scores, a record (58.2%) had a score of 700 or higher on a scale exceeding 850. The average FICO score is 704 (record). Lenders may have different thresholds, but Experian considers that.

According to FICO, about 7 million applicants who have low credit ratings because of their low borrowing rate will see their ratings improve under the new system. In addition, some 26 million subprime borrowers will end up with higher credit ratings, FICO said, with nearly four million registering an increase of at least 20 points.

Consumers with an average balance of at least $ 400 and who have not exhausted their inventory in the previous three months would probably benefit from a boost, FICO said.

Of course, new scores may make some bad debtors more solvent than they are.

According to David Shellenberger, FICO's Senior Director of Rating and Predictive Analytics, the new score is a better predictor of which candidates are likely to make payments and which are likely to default, while reflecting positive financial behavior up until now. there invisible.

FICO is "very focused" on its "ability to separate good future borrowers from bad borrowers," said Shellenberger.

Some scores may decrease when the new information is taken into account, he said.

Experian will compile consumer banking information with the help of financial technology firm Finicity and distribute the new score to lenders. Experian will also send lenders a report containing a summary of the consumer's bank accounts.

Experian will retain the potentially valuable cache of the desired account information. The company said that it would use the data to resolve consumer conflicts regarding accuracy. FICO does not have access to custom account information.

The additional financial data gives lenders "a more complete picture to lend to consumers in a more responsible way," said Greg Wright, product manager at Experian.

UltraFICO is the latest in a recent series of changes by credit rating and rating companies that help improve consumer credit ratings.

Equifax, Experian and TransUnion started last year to remove most information on tax privileges and civil judgments from credit files. They also removed some accounts from the collections as a result of regulations with state attorneys general dating back to 2015 on how they handle errors and some negative information on credit reports.

According to a recent report from the Federal Reserve Bank of New York, eight million consumers whose collection accounts were completely removed from their credit records during the 12 months ended in June saw their credit score increase. 14 points on average.

FICO updated its scores in 2014 to give less weight to recovery medical bills and to exclude accounts paid or paid by consumers with a collection agency.

Write to AnnaMaria Andriotis at [email protected]