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WSJ: FICO plans big shift in credit-score calculations, potentially boosting millions of borrowers

WSJ, October 24, 2018: FICO plans big shift in credit-score calculations, potentially boosting millions of borrowers

Credit scores for decades have been based mostly on borrowers’ payment histories. That is about to change.

Fair Isaac Corp. FICO -0.70% , creator of the widely used FICO credit score, plans to roll out a new scoring system in early 2019 that factors in how consumers manage the cash in their checking, savings and money-market accounts. It is among the biggest shifts for credit reporting and the FICO scoring system, the bedrock of most consumer-lending decisions in the U.S. since the 1990s.

The UltraFICO Score, as it is called, isn’t meant to weed out applicants. Rather, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions, which could indicate how likely they are to repay.

The UltraFICO score will function as an appeal of sorts, likely boosting many applicants with less-than-ideal records. If an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity. Would-be borrowers with at least several hundred dollars in their accounts, who have had the accounts for a while and who transact frequently and don’t overdraw are likely to see their scores rise, FICO said.

Applicants will be able to choose which accounts they want considered when the score is recalculated.

FICO said about seven million applicants who have low credit scores as a result of thin borrowing histories would likely see their scores improve under the new system. Separately, some 26 million subprime borrowers will end up with higher credit scores, FICO said, with nearly four million seeing an increase of at least 20 points.

Consumers with an average balance of at least $400 who haven’t overdrawn in the prior three months would likely get a boost, FICO said.

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