FICO™ is changing up the traditional credit scoring system with the introduction of UltraFICO™.
The UltraFICO™ score is aimed at providing an opportunity for consumers with credit scores in the 500-600s to push their scores over a potential lender’s credit score cut-off. According to FICO™, 79 million US consumers have credit scores below 6801. Included in this demographic are the millennials. Just getting started with building a credit history, this generation’s credit scores fall within the mid 600s2.
UltraFICO™ could also benefit 53 million Americans who don’t have enough information in their credit files to determine a FICO™ credit score, including young or immigrant applicants looking to start building a credit profile. It could also help Individuals working to reestablish their credit after financial distress.
The new UltraFICO™ scoring system takes into account day-to-day activity within the qualifying credit applicant’s checking, savings and money market accounts. The age of their accounts, recent overdraft history and account balance are all factored in. The idea is for lenders to be able to obtain a broader picture beyond the subprime borrower’s credit history, taking into account how the applicant manages their money on a daily basis.
In order to qualify for the voluntary UltraFICO™ score, individuals will need to have at least $400 in savings and no negative account balance during the prior 3 months. They’ll also need to apply for credit through a lender using Experian to obtain the credit report and credit score since during the initial rollout, FICO™ is only participating with Experian.
UltraFICO™ is not without risks. Credit applicants increase their risk of identity theft by opening up electronic access to their bank information. In addition, consumers still need to know where they stand financially. Even though the lending institution may now deem them an acceptable loan applicant based on their UltraFICO™ score, it is up to the individual to know what amount they can realistically afford to borrow without jeopardizing their financial well-being.
These very same individuals are employees within your organization. These employees, who may not have qualified for a line of credit until now, are in need of financial resources that provide education on credit, compounding interest and identity theft. They need help determining if their decision to borrow will have a negative impact on their financial well-being. As their employer, their financial well-being directly impacts your bottom line; the ability for you to provide financial resources to aid in their sound decision-making is paramount to the overall health of your organization.
A holistic financial wellness program that supports the 4 financial pillars of Spend, Save, Borrow and Plan can help your employees make educated borrowing decisions, improve their credit worthiness and encourage a practice of saving money. All while supporting your employees during their current financial challenges.
UltraFICO™ opens up a new opportunity for individuals falling in the subprime area to obtain credit. While this could present a great opportunity to purchase a home or finance education, it can also result in even more individuals struggling with debt if they don’t have the knowledge to manage this newfound opportunity. If your company is on the fence about offering a financial wellness benefit, this is just one more reason to consider it.