New scoring could help credit-shy millennials

Millennials’ aversion to credit cards can make it hard for them to build good credit scores. A recently announced scoring system, the UltraFICO, may someday help them and other consumers get loans and credit based on how they use their bank accounts.

People who don’t overdraw and who keep a few hundred dollars in their accounts could get enough points added to their traditional FICO credit scores to qualify for approvals or better rates and terms. Others who don’t have FICO scores at all could get UltraFICO scores that allow them to get approved for credit.

These are big changes, because up to now consumers needed a credit history to generate credit scores . Good credit scores not only save people money on loans but can help them get apartments, cheaper insurance and better cell phone deals as well.

UltraFICO’s creators — credit scoring company FICO, credit bureau Experian and financial technology company Finicity — say the score could help people who have little or no information on their credit reports as well as those recovering from credit setbacks.

“The number of consumers that will benefit, that will see score increases over their traditional FICO scores, is in the tens of millions,” said David Shellenberger, senior director of scoring and predictive analytics for FICO.

It’s important to temper expectations, though:

• The UltraFICO score hasn’t even reached the pilot stage yet; that’s planned for next year.

• Even if the score moves beyond the pilot stage, there’s no guarantee that lenders will adopt it or that it will ever become widely available.

UltraFICO’s creators are certainly hopeful. They believe the score will connect lenders with creditworthy customers who haven’t been discovered by mainstream scoring systems.

Those hidden gems won’t be millennials only, of course. But the generation born shortly before the turn of the century is less likely than previous generations to use credit, especially credit cards. Recent research by Visa found that people born from 1980 to 1996 use debit cards, which instantly pull money from their bank accounts, more than any other form of payment. Paying with debit cards avoids credit card debt, but doesn’t build credit scores.

The UltraFICO score may be a way for lenders to meet this