UltraFICO 101: What You Need to Know About the Newest Credit Scoring System

I spend a lot of time coaching people about how to raise their credit scores. This is a critical part of personal finance because having a great credit score opens the door to lower interest rates on credit cards and loans when you need to borrow.

If you’ve already started working on your FICO score, awesome! But you also need to be aware of some important changes coming down the pike that could improve your credit score even more.

What Is UltraFICO?

Your FICO score is the number that describes your credit-worthiness to banks and lenders. (For more on how the traditional FICO score works and how to improve yours, see this in-depth article.) This scoring system is based on how long you’ve had credit, how much of it you use, and how often you make timely payments, among other factors.

UltraFICO is a new, optional scoring system being rolled out by the same company. It’s designed to help people who might be good borrowers but who don’t have stellar traditional FICO scores. If your regular credit score is too low to get a loan, you may opt to share some additional personal financial information with FICO to have the recalculate your score. If your score goes up, you may get the loan after all.

How Is UltraFICO Calculated?

If you opt in to the UltraFICO system, you’ll basically open up your bank accounts to allow FICO to judge your balances and transaction history. You get to pick which accounts to share, and they’ll look at the following details:

  • How long you’ve had the account
  • How big your balance is
  • How many transactions you’ve completed
  • How many times you’ve overdrawn
  • The balance of deposits to withdrawals

Though it’s not exactly clear how these items are weighted, the ideal candidate will have a long-standing account with no overdrafts and an average daily balance of at least $400. If they do, they could get up to a 20-point boost to their FICO score — and that could be the difference between getting a loan or not, or getting a better interest rate.

Who Will Benefit From UltraFICO?

Because UltraFICO can only add something like 20 points to your FICO score, people who already have high scores — say, above 700 — probably won’t see a benefit. But if you’re hovering in the high 600s, UltraFICO could help you — if you have strong banking skills and some money in your checking account. If you have a very low score, UltraFICO may not provide a big enough boost to change your outlook just yet,

It’s also worth mentioning that banks and lenders will also benefit. That’s because they need people to open credit cards and pay interest to make money, and having more people with high credit scores means that more people will be eligible for credit.

Does UltraFICO Mean I Can Relax About My Regular Credit Score?

No! All of the advice I’ve given about raising your traditional FICO score is still important for two reasons. First, the standard FICO score still forms the basis of your total credit score, even if you opt into UltraFICO. It’s best to think of UltraFICO like extra credit — it won’t help your grade much if you start with a D minus.

Second, taking steps to improve your credit score will also help improve your overall financial health. It’s just plain good advice. So you should still be committed to:

  • Paying down your debt
  • Using only a low- or no-fee credit card
  • Using your credit card for necessities that you can afford
  • Paying off your credit card balance in full every month

To sum it up: Keep working to build up your standard FICO score. If you’re close to 700 and are given the opportunity to try UltraFICO, it could help you if your bank accounts show that you have a good handle on your money.

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