Starting next year, you might notice a boost to your credit score.
Here’s what you need to know.
Credit Scores: What’s Changing?
Beginning next year, a new pilot program called UltraFICO™ may enable you to enhance your credit score by incorporating data from your checking and savings accounts.
As a result, your credit score could increase if the data contained in your bank account shows a pattern of responsible financial behavior. For example, lenders may analyze how long your bank account has been open and whether you save money as additional factors to evaluate your credit worthiness.
Consumers would opt-in to the UltraFICO™ score and decide whether to share their banking information to increase their access to potentially better lending options and terms.
How will your credit score change?
If you have a lower credit score or no credit score at all, this change not only could provide you with a credit score, but also increase the one you have.
Consumers with strong credit likely would see minimal impact to their credit scores, while consumers with weaker credit could experience a higher impact.
According to Fair Isaac, the credit-scoring company behind FICO, approximately four million consumers may see their credit scores rise 20 points on average.
Fair Isaac also says that seven of 10 consumers who can show average savings of $400 without negative balances in the past three months see an increase in their FICO™ score with the UltraFICO™ score.
What The Change Means
The new UltraFICO™ score is intended to help lenders make more informed lending decisions by incorporating more positive financial behaviors into lending decisions.
This could impact lenders who lend student loans, personal loans, mortgages and credit cards such as JP Morgan Chase, Citi, Capital One, Wells Fargo, American Express and many other banks and lenders.
For example, a consumer may have no or limited credit history, but may still have enough cash and income to repay a loan.
While some argue that this enhanced credit score may offer new and existing consumers expanded access to credit, others argue that borrowers who are not financially responsible may end up borrowing credit that they cannot afford.
Lenders may also approve more borrowers for loans (suggesting higher loan volume and income), and suggesting that banks may be willing to take some higher degree of lending risk.
How To Increase Your Credit Score
Lenders use your credit score as one factor to determine your creditworthiness. Credit scores can be used to decide whether you are approved for a private student loan, personal loan, mortgage or auto loan, for example, and the interest rate you will receive.
FICO credit scores are among the most frequently used credit scores, and range from 350-800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 600 is considered to have poor credit.
Whether you have a student loan, personal loan or mortgage, there are proactive steps you can take to increase your credit score. Here is a quick snapshot:
1. Make on-time payments.
2. Don’t skip payments.
3. Manage your credit card utilization (ideally 30% or lower)
4. Pay off outstanding debt or earn more income (or both) to lower your debt-to-income ratio
5. Consolidate credit card debt with a personal loan.