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What Is the UltraFICO™ Score and What Does It Mean for You?

Dan Caplinger, The Motley Fool

The next generation of credit scoring is here. Find out how this new credit score works and what you need to know about it to keep your credit in good shape.
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A pile of different-colored credit cards.

Your credit score is the gateway to being able to access loans of all kinds. Whether you want to buy a home, get money to make much-needed household renovations, or sign up for a credit card, it's hard to find a lender that'll give you access to credit if your score isn't up to snuff.

Fair Isaac is the company behind the famous FICO® Score, which is one of the best known credit scores available in the market. Recently, however, the credit-scoring company, in conjunction with credit report leader Experian and financial technology company Finicity, came out with the UltraFICO™ score, giving consumers a chance to play a more active role in managing their credit and controlling the financial data that goes into their scores.

The basics of the UltraFICO™ Score

UltraFICO™ represents an attempt to create an even broader credit score than is currently available. Until now, most credit scores have been based solely on information relating to loans and outstanding credit. From the way that you handle your debt, a credit scoring agency can give its opinion of your creditworthiness with a high degree of confidence.

However, UltraFICO™ recognizes that there are more aspects to financial responsibility than simply handling debt. In particular, what UltraFICO™ does is give users an opportunity to link up other financial accounts, such as checking, savings, and money market accounts. By providing a look across a person's entire financial life, UltraFICO™ adds useful information that most credit scores leave out.

In particular, UltraFICO™ measures the following beneficial traits in your financial history:

  • Linking bank accounts to your credit score shows would-be lenders how you've handled your bank account finances over time.

  • Those who've avoided having negative balances in checking and savings accounts can get rewarded for their responsible financial behavior.

  • If your savings has steadily increased and you routinely keep a healthy average balance, it's an indicator that you can afford to handle a certain amount of debt.

  • Your bank account can show evidence of regular bill payments and other necessary transactions.

In addition, much of the same information that the regular FICO® Score measures with credit accounts would get incorporated into the UltraFICO™ score with bank accounts. For instance, the length of time that you've had an account open would be valuable information that would go into your score, as would the frequency with which you use a checking account. More active use of your financial accounts would be a sign that you're willing to assume responsibility for your finances. Depending on how all those factors weigh out, UltraFICO™ can result in a higher score than traditional FICO measures would produce.

How UltraFICO™ could help you

The website discussing UltraFICO™ is quick to note that the new score can have huge benefits for those consumers who decide to opt in and use the score. In general, the company argues that the score can get you better lending options and loan terms on different kinds of credit.

Among more specific claims, about 7 out of 10 consumers who have successfully managed to save an average of $400 in their checking and savings accounts without having seen their balances go negative would see an increase in their FICO® Score if they used UltraFICO™. Moreover, although many people don't have a FICO® Score because they don't have an extensive enough credit history to give the company a basis for providing a score, more than 15 million consumers would be eligible to receive an UltraFICO™ score if they chose to opt in.

How can you participate in UltraFICO™?

At this point the UltraFICO™ score isn't available to all consumers. During an initial phase, the score is available through a small group of lenders, with consumers who don't currently have access to credit or who could be eligible for better loan terms in some cases being the targets of the pilot. The idea is to use the data collected during the pilot program to refine the UltraFICO™ score, improving its usefulness before releasing it to the general public.

Eventually, though, participating in UltraFICO™ will be easy. A mobile app will let you search for your various financial accounts. Once you've provided login information, the app can then link your chosen bank accounts with the credit-scoring process. The whole process can be done in minutes, and from then on, your UltraFICO™ score can incorporate the more complete picture of your financial life that adding bank accounts to your outstanding loans provides. Alternatives would also be available for those who prefer using a desktop computer or a tablet rather than a mobile phone.

Why UltraFICO™ is worth a closer look

In the end, what's important about a credit score is that it give you access to the loans that you want at the best possible terms. Not only will a higher score let you get loans that a lender might otherwise be unwilling to give, but you'll be more likely to get a lower interest rate if your score is attractive.

Although it's possible to improve your traditional credit score, it usually takes time. If you've made mistakes with your credit in the past, then you have to establish a pattern of good behavior before your score will improve. One slight hiccup can send your score back downward, crushing your confidence.

The biggest benefit of UltraFICO™ is that depending on your circumstances, it could in some cases result in an immediate upgrade of your credit score. If you tend to handle your bank account relationships well and only make mistakes with your credit cards and loans, then incorporating the favorable bank information should boost your score quickly. Of course, if your bank history isn't all that much better than your credit history, then it could well be that UltraFICO™ won't do you much good.

It'll be interesting to see what happens with UltraFICO™. Given the opt-in nature of the product, it'll take buy-in from consumers in order for it to take off -- and that'll require that the scoring agency work to demonstrate the advantages of UltraFICO™ not just for financial institutions but for their customers as well.

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