When you apply for a mortgage loan, a lender will typically run a credit report in short order. From the credit report, the lender will most likely look to your FICO® score. FICO® is a scoring system used by the three major credit bureaus to determine your eligibility for the loan you are seeking. For decades, credit scores have been largely based on a person’s past dealings with banks and other financial institutions.
However, if you have never taken out a loan or owned a credit card, or you are just starting to build your credit, lack of credit may also affect your ability to be approved for a loan. With the aforementioned considerations in mind, FICO® recently debuted a new opt-in scoring system known as the “UltraFICO™ Score.” By linking their checking account, savings account or money market accounts with FICO®, users have the opportunity to build credit based on the data they share. When determining whether an applicant poses a credit risk, lenders now have the opportunity to consider — along with more traditional categories — evidence from savings, account balances, bank account history and any other transactions.
UltraFICO™ Score is especially helpful for both younger consumers with little credit history and those who’ve previously dealt with low credit scores. If you already have good credit and a well-established credit history, it is unlikely you will see a significant boost from an UltraFICO™ Score. According to FICO®, seven out of 10 consumers with average savings of $400 and without negative balances in the past three months see an increase in their FICO® Score with the new system.
The announcement of broader scoring modalities comes on the heels of a comprehensive effort to expand access to credit. Late last year, Experian rolled out Experian Boost, a new tool that enables consumers to incorporate utility and cell phone payments into their credit history and potentially increase their FICO® Score instantly. To learn more how you can benefit from these latest credit models, click here and here.