UltraFico: Is it going to help you buy a home? Yes and no.
With UltraFICO you can grant access to Experian to link your checking account, savings account , and money market account to your credit report, which in turn will affect your credit score. For many people, this additional ‘financial history’ will provide a boost to their credit score.
Experian and FICO have decided that your banking data can provide the following evidence to lenders:
That you are able to maintain a healthy and positive account balance
That you are able to regularly and promptly pay bills
That you have maintained a positive relationship with your bank throughout your account history
That you are able to make wise use of your money
That you are able to save money
If you have a positive banking history, UltraFICO may be a good fit for you. For it to boost your account, however, you’ll need to have had had very few overdrafts (and they’ll need to have happened more than a few years ago). You’ll also need to have consistently held a few hundred in savings ($400 is recommended). If this is you, UltraFICO may very well help.
Reminder: Everyone has three credit scores.
FICO generates a unique credit score from each credit bureau’s credit report on you. Therefore, everyone has three credit scores that reflect data received from Experian, Equifax or TransUnion. We all say we want to raise our credit score, but what we should really say is credit ‘scores.’
Scores range from 300-850, and are considered to have six categories:
Bad: 300-549
Poor: 550-649
Fair: 650-699
Good: 700-749
Excellent: 750-799
*Elite: 800-850
*You actually won’t see Elite listed anywhere, but all lenders consider anything above 799 to be its own credit category.
What is the minimum credit score needed to buy a home?
FHA loans, which are loans aimed at low income and low credit score borrowers, accept credit scores of 580. At the moment, this is the lowest accepted credit score on the market.
Will UltraFICO be a fourth credit score?
No, UltraFICO will only replace your standard Experian credit score. It won’t be a fourth separate one.
What categories will it impact?
It remains unclear what formula FICO will use to develop an UltraFICO score. Typically scores are broken up as follows:
Payment History: 35%
Credit Utilization: 30%
Length of Credit History: 15%
New Credit: 10%
Types of Credit Used: 10%
With UltraFico, it’s possible that your banking history might somehow be divvied up between the above categories, or new categories might instead be created, which means the percentages above would change. At the moment we can only guess.
How much can I expect my score to go up?
Not a huge amount. UltraFICO expects the average to be about 20 points, which may be enough to put you in a new credit category and get you a better rate. However, FICO has stated that people in the upper 500s and lower 600s will benefit the most.
For whom is UltraFICO intended?
UltraFICO is advertised as a way for people with low to no credit scores to boost or establish a credit score. If you’ve never had to make a monthly payment on something, such as a student loan, car payment, or credit card, your credit report doesn’t have that much information on it (hence the low-to-no score). Kudos to you for not bending to the system and accumulating debt, but if you want to buy a house and need to borrow money to do so, It’s likely you won’t get approved for a mortgage.
Lenders like to know that lending you money is a wise investment for them and that you’re likely to pay upon your debts. If nothing in your financial history suggests you would be a wise investment, they’re going to pass you up.
UltraFICO will be completely voluntary.
You choose what checking and savings accounts you want to share with FICO. Experian won’t just go looking into all of your banking accounts. You have to tell them which ones you want to share.
How will it ‘maybe’ help you buy a home?
It’s common practice for lenders to take the middle credit score when approving a mortgage application. So say you have the following credit scores from the three credit bureaus:
TransUnion— 680
Equifax— 620
Experian— 705
Your lender will look at your scores and decide to use your 680 TransUnion score when approving you and assigning a rate. (If you and your spouse are buying a house together, your lender would take the lowest middle score between the two of you.) If your Experian score wasn’t high because of the banking history boost, it’s likely your lender would have considered your credit score ‘fair’ instead of ‘good.’ A ‘fair’ credit score means your mortgage interest rate would have been higher.
Because lenders look at all three credit scores and choose the middle one, it’s very possible an inflated Experian score won’t change that much for you. But, all in all, it does better your odds if you have a good banking history.
In conclusion: Don’t let UltraFICO be your only weapon.
Raising your credit score isn’t rocket science. There are a variety of ways to do it. As health crises often require a multidisciplinary approach, so, too, does improving your credit.
So, make sure you also:
Pay your bills on time
Pay down your debt when you can
Check your credit report for any errors
Dispute any credit report errors on your credit report (in writing)
Keep all of your credit cards open
We’ll go into each of these more in the near future. Until next time, hipsters.