Your Credit Score Is About to Soar Thanks to FICO’s Brilliant New System

UltraFICO factors in your banking habits and more.

FICO, the widely-used company that analyzes and records credit scores, is scheduled to roll out its new UltraFICO system next year. This system will take into account additional factors in determining your credit score: your savings, checking and money market account activity. What this means for millions, and possibly for you — FICO scores are used in more than 90 percent of lending decisions — is that previously ineligible prospective borrowers could have more leeway when it comes to obtaining a loan or line of credit.

The new changes intend to reflect a more nuanced portrayal of your financial profile. As a result of the additional factors being considered, UltraFICO could raise the score of about 4 million people by an average of 20 points, Forbes reported. UltraFICO is “opt in,” so you would not have to link your credit profile to your bank accounts if you don’t want to, as the new system most benefits those with a low score or no score at all.

What Is a Good Credit Score?

Credit scores usually range from 300-850, with anything above 700 generally being considered good. Most credit scores fall between 600 and 750, according to Experian. As of September 2018, the average FICO credit score was 704, which is an all-time high. Factors that are currently used to determine your credit score include payment history, length of credit history, utilization rate, outstanding debt and any recent credit report activity. According to FICO’s website, the new UltraFICO system is in partnership with fintech company Finicity and credit reporting bureau Experian. FICO also notes that over 15 million consumers without a FICO credit score could have one using the UltraFICO criteria.

Read: 8 Ways to Get an 800 Credit Score

Other Potential Benefits and Drawbacks of UltraFICO

A better FICO score isn’t just good news for borrowers; lenders should have a deeper pool of applicants to which they can loan to. This could lead to other issues, however, should the vulnerable consumers be targeted.

“For some people, this may lead to extra debt,” said Ted Rossman, industry analyst at CreditCards.com, in an interview with TheStreet. He added that “if a recession were to hit, and we see a less robust environment, some people might get into trouble with loans that they perhaps shouldn’t have qualified for.”

Understand: Does Opening a New Credit Card Hurt Your Credit Score?

The new rule comes at an interesting time. There appears to be a resurgence in subprime mortgages for borrowers with poor credit, an effort spearheaded by Bank of America. Subprime mortgages, and those who lent them, were key factors in the Great Recession. As interest rates rapidly rose and home values fell, borrowers were unable to pay back their loans.

Whether the new UltraFICO rules benefit you or not, always consider your financial needs and goals before borrowing.

Click through to read about the things you do that kill your credit score.

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