Credit Score Changes In 2019

Have you ever applied for credit
and been turned down because of a bad
credit score? Do you wish to have a comprehensive credit history to
enhance your creditworthiness?

Perhaps you haven’t applied for
new credit in a while, and you are
wondering if there are other ways to prove your financial prudence to the
creditor besides credit history.

FICO
is making changes to credit scores effective
as of January 2019. A new version of FICO called UltraFICO can improve your credit scores based on how you manage
the cash in your checking, savings, and money-market accounts. The
Wall Street Journal
describes this new credit scoring model as one of “the biggest shifts for
credit reporting.”

Since the 1990s, payment history has been the main
determiner of credit scores and the yardstick for measuring a borrower’s
eligibility in credit and loan considerations. The finer your history, the
higher FICO will score you–but there’s a little problem with this method.

For the millions of Americans
with little or no credit history, they can't approach creditors for personal
loans unless they are ready to commit to higher interest rates. In many cases,
they can't even obtain a loan at all because they have a poor credit score that
stems from a less than desirable credit history.

A
number of lenders have recorded a series of losses for basing a
borrowers’ financial integrity on their past repayment records alone, since there is not enough information to
capture the financial stance of such
people.

By collecting more data from
consumers, FICO will now address most of the concerns arising from
lender-borrower transactions and possibly increase consumers’ credit scores
under the new UltraFICO scoring model.

How the UltraFICO Scoring Model Works

Although UltraFICO promises to
give people an
opportunity to increase their score and gain good credit, consumers must opt-in for the service and be willing to share their data if they want to be assessed under the new scoring framework.

While standard FICO scores are
based on payment history alone, the UltraFICO
Score-depending on how much data you shared-
factors in a wider range of data which may
include utility bills payment as well as aspects of your banking transactions.
The goal is to assess
your financial situation and how well you handle money. So, it
doesn’t matter if your credit score is low or you have no score, as long as you don’t have overdrawn accounts and the data you
share shows a positive attitude and positive habits regarding money, your UltraFICO score will
be high.

With
the new credit score changes, many more consumers can gain access to broader
lending options and better terms. For example, consumers can see an average of
$400 in savings throughout three months, and this will possibly increase a consumer’s FICO
score. If your information indicates the likelihood that you will repay debt, then it can boost approval for personal
loans and credit cards.

Once UltraFICO takes full effect,
it can help creditors and lenders spot risky borrowers, using the additional
information provided to determine the attitude of consumers to money. In
essence, lenders will be better informed and better able to make decisions
about an individual’s approval and interest rates.

What Not to Expect from UltraFICO

UltraFICO
seems to be the newest and greatest thing
in the credit world, but it's normal for a new product like this to hit the
town amid a storm of hype. Nearly every other person is talking about its unrivalled benefits for consumers and creditors
alike, but in doing so are paying less attention to its drawbacks.

A critical look at the 2019 model
of the FICO system reveals why one must not expect too much from the product.

• If you already have strong
  credit, UltraFICO won't have
  as much impact on your credit scores as it will for the consumer with a weaker
  credit score because of obvious reasons. It was created primarily for consumers
  with low scores.
• UltraFICO
  will not replace or eliminate credit reports in any way, and banks will still be able to read your
  credit reports regardless of the FICO score. Remember that creditors now have
  more of your financial details which FICO previously shrugged. Take paid debt for
  instance. It stays on your credit report for seven years even though FICO will not
  use it to determine your score. So, when you want to apply for a loan, lenders
  have more robust information with which to assess you and that may not always
  be to your advantage.

• Forget about the UltraFICO
  changes happening anytime soon. Lending institutions have seen multiple FICO
  score versions, including the recent version 9, but FICO 8 remains the most
  used version among them. The fact that they are releasing yet
  another FICO model doesn't mean lenders will take it up immediately.

• The more things change, the more they remain the
  same. It's ironic to think that credit score changes which they design to alleviate
  financial problems tend to increase debts and debtors in the long run. According
  to the Federal Reserve, Americans collectively owe about $1 trillion
  in credit card debt, with the average household owing more than $16,000. If
  UltraFICO works as intended, many people already in debt may delve further into
  more debt. The easier it is for people to access credit, the less they look
  into alternative means to fund their lifestyles.

As we await the utilization of
the new credit scoring style, it's important to note that people who are fresh
to credit or have a lower or less-than-perfect credit score will benefit more
from the new scoring system. Notwithstanding the hype about UltraFICO, lenders will use their discretion in
choosing a scoring model, approving loans and setting charges.

While creditors are showing more
of a willingness to take risks and provide consumers with easier access to
credit cards and loans, the onus is on the borrowers to pay down their debts as
agreed. It all boils down to one thing–the need for everyone to embrace
personal financial discipline.

If you're unsure how credit scoring works, or just want to learn more about credit repair, contact us.

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