As important as credit scores are, they are also awfully confusing.
Creditworthiness is calculated using different methods, the most common of which is called FICO. Developed by Fair Isaac in the 1980’s, a FICO score has become the most common way for banks and lenders to determine your ability to pay back a loan.
The traditional FICO score was calculated using factors such as your payment history, amount owed, length of credit history, credit mix, and new credit applied for. Each of these factors has a specific weight applied towards calculating your credit score: credit mix, for instance, or the different types of credit, account for 10%, while payment history represents 35%.
But what happens if you have no credit history? Where does cash factor into this? This is where the new UltraFICO score comes in.
The UltraFICO score will take your cash flow into account when calculating your credit score. Up until now, consumers looking to establish a new credit history found it difficult to obtain new loans and found secured credit cards the one and pretty much only way in which to kick start their credit history. This new credit score format will help those with no credit history establish one without needing to get a secured credit card.
Looking at the way in which people handle their cash is also a great way for creditors to see how likely you are to pay a debt. Instead of relying solely on payment history to see whether you will be able to pay for a new credit or not, the amount of cash you actually have and how you spend it can be very revealing, hence it will also be taken into account when calculating your UltraFICO.
With the UltraFICO score consumers will be in control. You will be able to feed the system with the data you deem necessary, such as the amount available in your checking or savings accounts.
Thanks to the new UltraFICO, people with no or little credit history, and even those looking to rebuild their damaged credit scores, will be able to build a new credit history and score, allowing them the opportunity to get loans, new credit cards, and even mortgages, easier.