Long answer: It just might save you hundreds of dollars next year.
UltraFICO isn’t a superhero in the Marvel Universe, but it might as well be. Superheroes save the world, but UltraFICO will save you money.
Over the weekend, reports trickled out that a new kind of credit score is coming in 2019. It’s called the UltraFICO Score, and it will change the way your interest rates are calculated on everything from your credit card to your mortgage.
In a nutshell, the new score won’t just judge you on how much you borrow and how quickly you pay it back. Starting next year, it’ll also consider how you manage the money in your bank — your checking, saving, and even money-market accounts, if you have them.
The Journal exclaims, “It is among the biggest shifts for credit reporting and the FICO scoring system.” Let’s break that down…
UltraFICO: “An appeal of sorts”
For years, Debt.com readers have told me horror stories about suffering a financial crisis —a divorce, illness, accident, or natural disaster — and then watching their previously awesome credit score plummet. There was nothing they could do about it.
UltraFICO will help. The Journal says UltraFICO “will function as an appeal of sorts.” If you apply for credit and your lender sees your “traditional” FICO score is weak, there’s now an option to strengthen it enough to get that loan.
Namely, that lender will be able to consider your “banking activity.” If you have even a few hundred dollars in your accounts, and you haven’t bounced checks or gone under the minimum balances, that will count in your favor.
It might not sound like much, but as anyone who’s applied for a mortgage or an auto loan knows, every little bit helps. When you talk about big-ticket items, a few points can be the difference of hundreds of dollars over the life of the loan.
Both sides want this
Skeptical Debt.com readers might be asking themselves, “What’s the catch here? Why would FICO want to help me have a better score?” If you’ve ever struggled to beef up your score, you probably feel like the business world is trying to keep you down. That’s not true.
Lenders want to lend you money. It’s how they make money. They follow rules just like everyone else, however. Those rules give them a good idea if you’ll pay back the money they’re lending you. If FICO — the gold standard in credit scores — says it’s crunched the numbers and figured out a credible way to expand the reliable customer base for lenders, that’s good for everyone.
Not all lenders are going to view the same scoring models. To know how your credit score will be judged, check out how do you know which credit score your lenders will use?
Neither side is seeing the downside
Of course, in the world of credit and debt, no good deed goes unpunished. While we’re still in the initial new cycle for UltraFICO, expect some skeptical analysis within the next few days. I’ll start.
Anytime you make it easier for Americans to borrow, you make it easier for them to default. As we’ve reported before for MSN, Americans owe a record-setting and eye-popping amount of debt: $13.2 trillion. That’s enough to buy every adult in the country a 2018 Mercedes Benz E-Class.
If we don’t pay that back, the housing bubble will look like a soap bubble.
Then there’s something I call “credit score shell-shock.” Credit scores have been changing a lot lately. As Debt.com reported, just this year has seen changes in the consideration of medical collections and tax liens. In 2014, we reported how renting was now being factored into FICO scores.
So if I had to sum up my own feelings on this huge development, it would come down to two words: cautiously optimistic. This change will help more Americans get the credit they need, but if they don’t simultaneously learn more about their money, we’ll look back on $13.2 trillion in consumer debt as the good old days.
Here’s hope more Americans getting more credit means more of them want to master their money. I don’t care if they do that at sites like Debt.com, but I do care they do it somewhere. To learn more about how to improve your credit score, check out How to Get the Credit Score You’ve Always Wanted.
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Article last modified on October 22, 2018 Published by Debt.com, LLC . Mobile users may also access the AMP Version: What Is UltraFICO And Should You Care? Short Answer: Hell Yes - AMP.