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If you’re currently in the market for a new home, odds are you know what a credit score is. This vital number plays a crucial part in the mortgage application process, determining what interest rate you can expect or if you’ll even get a mortgage. Those with a high score (generally considered above 740) will get the best rates and access to more financing options. Those with a fair or low score (670 or less) will struggle to secure financing and may even have to put off their home-buying dreams until they can raise their score, which usually takes a few years.
Fortunately, there may now be another option. FICO, Experian, and Finicity, three of the largest credit reporting agencies in the land, have teamed up to offer an entirely new scoring model that could help people who are just getting started building a credit history. It’s called UltraFICO, and it’s what we’ll be looking at today in this article.
Get out your pen and paper because this might be what you need to turn your home-buying dreams into a reality.
What is UltraFICO?What is UltraFICO?
A traditional credit scoring model only considers the money you have borrowed from lenders. Your credit history includes credit cards, car loans, student loans, etc. Lenders use this data to determine how well you manage and stay on top of your debts. However, an issue with this approach to credit reporting is that it doesn’t take your everyday banking history into account. You could have a healthy bank balance and a superb record of always paying bills on time, but that won’t matter when determining your credit score.
By contrast, UltraFICO does take your everyday banking history into account. They created this opt-in credit reporting model to help people with below or average personal credit scores. It still considers any credit history you might have. But it also supplements that data with any information from your checking, savings, or money-market accounts. This includes information on:
- Your Account History – The longer you’ve held these accounts, the better.
- Your Account Balance – Based on the UltraFICO website, it looks for a “healthy average balance.” While FICO does not explicitly define this, it says that individuals with a balance of at least $400 over three months should meet this requirement.
- Your Account Activity – The frequency of your bank transactions – you should be fine if you have a good history of always paying your recurring bills (e.g., utilities, WIFI) on time.
Who is UltraFICO?Who is UltraFICO?
Anyone can opt into UltraFICO, regardless of their credit score. That said, it has the most benefit for those with low credit scores or minimal credit history. Initial estimates by FICO say that as many as 15 million people who don’t have a FICO score could now get one through UltraFICO. So long as you can maintain a healthy account balance and haven’t had any negative account balances in the last three months, you could finally get the score you need to secure a mortgage and become a homeowner.
However, while the arrival of UltraFICO is undoubtedly good news for many people, some concerns have been raised about it. Some people who get approved for a mortgage through UltraFICO might soon find themselves in trouble if they can’t keep up with their monthly mortgage payments. The ability to handle cash well doesn’t always translate into the ability to take credit well.
A bank balance of only $400 isn’t a whole lot. Ideally, enough to cover at least a year’s worth of mortgage payments, property taxes, routine maintenance, and living expenses. With that in mind, anyone considering using UltraFICO should take time to ensure they can handle the mortgage responsibilities. If possible, borrowers should aim to have much more savings before taking the plunge.
Are There Any Plans for UltraFICO to Fully Replace FICO?Are There Any Plans for UltraFICO to Fully Replace FICO?
No. Most banks and lenders will likely want you to run a traditional credit check before asking for your UltraFICO. That’s one thing we can be sure of – the UltraFICO intentions are to serve as a backup or a “second chance” for those who can’t get the credit score they need through a traditional scoring method.
The UltraFICO program is also entirely voluntary. You don’t need to surrender your banking information to a prospective lender for review if you don’t want to.
How to Sign Up for UltraFICOHow to Sign Up for UltraFICO
UltraFICO is still in beta testing and is only available through a small group of lenders. You can sign up by visiting the UltraFICO website. However, access to the program is currently only open for those who’ve been denied access to credit or given undesirable credit terms by one of these lenders. For now, it’s not known when they will expand the program. But you can sign up to be notified when the program has launched.
The sign-up form only requires you to provide the following information:
- Company and job title
- Phone number
After entering this information, you’ll have to select whether you’re interested in the product for yourself or your company.
Final ThoughtsFinal Thoughts
While UltraFICO might be the answer to many people’s prayers, we still don’t know when it will launch. Not everyone will likely be thrilled about handing over all their banking information to a potential lender.
For now, the best thing that any prospective homebuyer can do is continue working on boosting their credit score. This may take some time, especially if you start with little to no credit history. But taking out and managing debt can be a helpful teaching aid when you become a homeowner.