A big change is coming up in the new year that could boost your credit score, making it easier for you to buy a home, a vehicle, or other big purchases. Rather, it is created 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 UltraFICO Score, as it's called, isn't meant to weed out applicants.
The new score could be the way for lenders to boost loan approvals. The Wall Street Journal earlier reported on the scoring system. "Through this project, we've found a new way to use consumer-permissioned data that allows lenders to make better decisions and helps consumers gain access to credit". "It empowers consumers to have greater control over the information that is being used in making credit risk decisions". While standard FICO scores based on payment history will still be the default method for determining your creditworthiness, if those scores are low, banks can opt for the UltraFICO instead.
If a consumer's traditional number falls short, a lender can offer to have the score recalculated to reflect banking activity.
A decade after the subprime mortgage binge almost brought down the US financial system, consumer lenders remain wary of borrowers with low credit scores.
To improve their Ultra-FICO score in the new model, the two most important things a consumer can do is keep over $400 in the bank, and don't overdraw your account, according to Jarvis.
Some 58.2 percent of those with credit scores have a score of 700 or higher, but experts believe that pool of borrowers are largely tapped out.
The statement said that consumers new to credit or with limited history, along with those with previous financial distress that are getting back on their feet, will benefit the most from the changes.
Essentially, you can apply for credit in the same way, but if your application gets rejected, you can ask for an "Ultra-FICO" score.