Not Too Excited About the New UltraFICO Credit Rating
The Fair Isaac Co. (FICO) promises that its new UltraFICO rating , which debuts in 2019, will be a boon to some consumers without a long credit history. While this may be true, others should be wary of choosing a new valuation model.
In a nutshell, how the new model works: If a consumer has a short credit history or multiple bad ratings on a report, they can ask lenders to record their UltraFICO rating , which will be determined by their bank account. rather than their credit history. UltraFICO will take into account the person’s current balance (consumers must maintain a balance of $ 400 on average), the length of the check history, the frequency of transactions, and the history of overspending. If you already have a good credit rating / history, the new scoring model won’t help you.
While the FICO is positioning this as a win for consumers, some experts are less thrilled. As with any financial product, FICO does not do it out of the kindness of its soul: it and the loan issuers can make a lot of money by expanding the pool of customers using loans and paying high interest rates on balances.
“While incorporating bank transaction data into credit ratings could help some consumers raise their credit ratings, consumers should exercise caution before choosing this program and government regulators should monitor implementation closely,” says Maureen Mahoney, political analyst at the Consumers Union. … Consumer Reports reported.
For some consumers, credit may be beneficial, while others may fall into the debt trap. Consumers already have over $ 1 trillion in credit card debt, and further expansion could hurt more people during a recession.
In addition, consumers need to be careful with who they share their bank account information with. It is also possible that, given the assets, the new model will continue to favor the wealthy.
And do not expect that from January 1 you will be approved for a loan. “This offer won’t make you creditworthy overnight,” writes James Garvey, CEO of Self Lender, a startup that helps people create credit without credit cards. in an email. “Credit rating is used by a small subset of institutions, and therefore it will take years, perhaps decades, before there is any major change in consumer lending.”