FICO says changes could give lift to credit scores

You may soon earn a higher credit score if you balance your checkbook responsibly. FICO, developer of the most widely used credit score, is rolling out a new score next year that considers how you manage your checking, savings and money market accounts in addition to how you pay back credit cards and loans. This additional information could help boost the credit scores of some of the 79 million Americans who have poor credit histories, along with the 53 million who have no credit score at all under the traditional FICO model. That, in turn, could help them qualify for a credit card or loan. “We’ve been focused on financial inclusion, and what we’ve done can potentially improve access to credit for the majority of Americans who participate in it,” said Sally Taylor-Shoff, vice president of score at FICO. ❚ How does it work? If your credit score isn’t high enough to qualify for a loan or credit card, or sits on the cusp of getting a better rate, a lender can offer to use your banking activity to generate an UltraFICO Score. You also can choose which accounts – checking, savings or money market – will be considered in the recalculation. The score uses the same 300-to-850 range that other FICO scores have. Experian, one of the three main credit bureaus, will gather your bank account data using Finicity, a financial tech company, and send the new score plus a summary of your bank accounts to the lender for a second evaluation. Experian will maintain bank account data to address accuracy disputes. It’s possible that your credit score could decrease after the new banking information is added, according to Taylor-Shoff, so it’s important to understand when your bank account could help you. ❚ What is a good bank account? The biggest factors are average account balance and history of overdrawn accounts. Those who maintain an average balance of $400 and show no negative balances in the previous three months will benefit the most from the UltraFICO Score, TaylorShoff said. Other positive factors FICO considers include having more deposits than outflows, having an account open and active for some time, and regularly paying bills such as utilities and rent from these accounts. Seven in 10 people who demonstrate responsible checking and savings account behavior can improve their score under the UltraFICO scoring system, the company said, some by as much as 20 points. That can translate into a lower interest rate or the difference between approval and denial. The new score begins its pilot program at the beginning of next year.

THINKSTOCK As anyone who has applied for a mortgage or a car loan knows, a solid credit score is essential.