Fair Isaac Corporation, creator of the FICO credit score, plans to roll out a new scoring system in early 2019 that could result in higher credit scores for millions of would-be borrowers. 

The new “UltraFICO Score” factors in how consumers manage their cash, savings, and money-market accounts.  While borrowers currently have little control over their credit score, the UltraFICO Score will function as an alternative method for score calculation.  For example, if an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity.  According to FICO, borrowers who frequently engage in transactions, do not overdraw, and maintain a balance in their accounts will likely see their scores rise, especially because applicants will be able to choose which accounts they want considered when the score is recalculated. 

The new scoring system represents an answer to lenders seeking to boost loan approvals.  Following the subprime mortgage crisis, lenders have been cautious to offer credit to borrowers with low credit scores and have instead focused on ultra-creditworthy consumers.  With an improving economy, lenders can utilize the UltraFICO scoring system to boost lending without taking on significantly more risk.  According to FICO, about seven million applicants with short borrowing histories and some 26 million subprime borrowers will see their scores improve under the new system that will reflect positive financial behavior that was previously invisible.  

Troutman Sanders will continue to monitor important developments involving FICO and the major credit reporting agencies.