What Is An UltraFICO Score And Could It Work In The UK?

Posted by Katherine Cornell in Credit Score on 28 December 2018

Would-be borrowers in the US have been given a potential new route when it comes to proving their creditworthiness to potential lenders, thanks to the recently announced UltraFICO score, which looks beyond the information traditionally used to assess credit applications.

In addition to the scoring checks that are already used in credit applications, the UltraFICO score assessment includes additional factors such as current account activity and average balance, savings performance, and how long accounts have been held. Used in conjunction with more traditional checks, the idea is that this should help those people with limited credit histories to be accepted, and in particular those who might otherwise have been a ‘marginal decline’.

To obtain an UltraFICO score, users in the US will need to opt-in to the service and link the accounts they’d like to be taken into consideration. When applying for finance, consumers will also need to give their consent for the lender to carry out an UltraFICO check alongside traditional scoring factors such as payment history and outstanding debts.

Running in conjunction with Experian, ‘pilot’ tests of the new system are due to commence with a limited number of lenders early in 2019.

What are the benefits and drawbacks of UltraFICO?

Traditional credit checks do not take into account how much money you have sat in your bank account – credit scoring is a measure of creditworthiness and propensity to repay, not wealth. That said, if these new measures can be used to demonstrate financial stability (in conjunction with measuring creditworthiness), it may open up borrowing opportunities for those that would otherwise have been turned down in a borderline decision.

This extra consideration could be particularly helpful to individuals with limited credit history but are unlikely to be of much use to people with ongoing money problems or serious negative information on their Credit Report. That’s because lenders are likely to retain focus on core credit scoring checks, where a recent late payment is likely to have much more of an impact on a decision than money in the bank.

Consumers who maintain an average balance equivalent to $400 (just over £300 at time of writing) with regular current account activity and no negative balances in the previous three months are likely benefit the most.

Lenders are likely to be very cautious about putting too much faith in the new scoring system too soon, with responsible lending very much still on the agenda even ten years on since the 2008 recession. Credit Scoring is a proven mechanism for assessing creditworthiness and will remain as a core component in any lending assessment.

Critics argue that increasing the number of credit approvals should not really be a goal, and that traditional Credit Scoring – when used in conjunction with affordability tests – helps keep borrowing costs down by ensuring that credit isn’t granted when it shouldn’t be. It is also likely to take a long time before consumers see any real benefit - assuming that the programme makes it successfully through the pilot scheme of course.

The ‘chicken and egg’ scenario, where it can be difficult to get approved for credit with a limited credit history is a challenge facing many consumers, but there are plenty of specialist products designed for people that fall into this category such as ‘rebuilder’ credit cards. With a little patience and careful account management, the path to a wider selection of lenders and better products is well-established.

In fairness, UltraFICO is primarily aimed to supplement, not replace traditional credit scoring, but it is likely that lenders will adopt a very cautious approach.

Would a similar system work in the UK?

There are significant differences between how credit scoring works in the US and the UK. In the United States, most lenders use a Credit Score provided by a third party such as FICO (other score providers, including VantageScore exist) which assesses the information held by one of the three main Credit Reference Agencies.

It then falls to the individual lender to work out whether a potential customer fits the profile it is looking for. These scores can differ according to the data source being used and the product being applied for – for example car finance or a credit card.

In the UK, we cut out the middle man. Most lenders use their own credit scoring and acceptance criteria to assess the information held by Credit Reference Agencies, alongside affordability and other standard checks. There is no one Credit Score and lenders do not openly publish lending criteria.

Additionally, as many as one in four people in the UK have no savings according to The Independent, and while this is does not correlate to US savers - who are shown to save proportionally more than their UK counterparts - it would carry much less weight this side of the pond.

Overall, it’s very unlikely that we will see a similar system to UltraFICO come to the UK in the foreseeable future.

That said, lenders are always looking for ways to improve and supplement the data used in assessing applications for credit and so it’s possible that other criteria will start to play a part in lending decisions.

Open Banking in the UK uses the same technological principles, with the aim of securing better deals and choice for consumers by giving financial providers direct access to your personal banking information. Software then monitors things like your spending habits and suggests where you could save money.

Other potential uses include allowing a mortgage provider to access salary and expenditure automatically from your bank account without the need for paperwork. It is still early days, but considering that when Open Banking first launched only five banks were signed up, there has been progress and there are signs that it could have a big role to play in the future.

For the time being at least, consumers in the UK will have to rely on traditional credit scoring and acceptance criteria when applying for credit. Knowing what information is held about you, and how lenders are likely to interpret it is crucial in understanding how likely you are to be approved for credit and checking to make sure that everything is accurate.

If you haven’t already, you can try the UK’s most detailed Credit Report free for 30 days, then for just £14.99 a month afterwards, which you can cancel online, by phone or by secure message.

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