Residential Magazine

Set To Soar

The UltraFICO score aims to create a homeownership path for those who otherwise couldn’t qualify

By Steve Smith

In the past, credit scores typically predicted whether a borrower would repay a loan based upon previous payment history. Now, a new credit score called UltraFICO considers other factors in deciding creditworthiness, including assets and income. Mortgage originators will want to pay close attention to how this new scoring model can unlock homeownership for their clients.

Credit scores are an essential component of the risk-management process in mortgage lending. Unfortunately, nearly 80 million Americans have a FICO score below 680, and another 50 million have no score at all due to the absence of data in their credit-bureau files. The result is a lose-lose situation for lenders and borrowers.

Consumers have limited access to loans for big-ticket purchases like homes or cars, while there are fewer qualified borrowers for lenders and the originators who work with them. To help improve this situation, companies are taking a broader approach to gathering predictive data and using it to appropriately evaluate financial risk, helping traditionally underserved populations build credit and achieve their financial goals.

In addition to referencing traditional FICO scores, lenders can now use data accessed with permission from consumers to deliver digital verification of both assets and income, gain greater insight into a potential borrower’s financial health and ultimately bolster financial inclusion for millions of Americans. This data is even being used to enhance FICO scores themselves, helping more consumers get on the credit ladder and ultimately achieve the American dream.

Among the most challenging populations to score are those who are just beginning to build a credit profile — young people and those who are new to the country — as well as those reestablishing their financial standing following a period of distress. Without enough traditional credit-bureau data at their disposal, lenders often have a tougher time assessing the ability of such consumers to repay a loan.

Given that three in four millennials see homeownership as a top priority, this up-and-coming generation is actively seeking more ways to prove to lenders that they’re financially responsible. Many are responsibly handling their finances and have settled into stable jobs, but their current credit history may not reflect that. The same goes for those who haven’t been in the U.S. long enough to build a sufficient credit history.

Unable to demonstrate their financial well-being, such consumers risk missing out on lending opportunities that are essential to achieving their financial goals. That’s where the new UltraFICO score can make all the difference. Although they are currently available only as a pilot program to a few select lenders, the new credit scores could be widely used in the near future to assess mortgage applicants. From increasing access to homeownership and other major financial milestones, as well as bringing in new clients, the UltraFICO score has the potential to benefit all corners of the mortgage industry.

Cusp of qualifying

Nearly 75% of nonhomeowners consider buying a home an essential part of achieving the American dream. Unfortunately for the consumers who are either credit invisible or fall just short of loan-qualification standards, buying a home can often seem out of reach.

With the UltraFICO score, however, change may be on the horizon. Instead of remaining on the outside looking in, the score can help more borrowers qualify for loans — or for better terms on the ones they receive, leveraging data that is both compliant with the Fair Credit Reporting Act and already trusted in other aspects of the loan-underwriting process.

For example, the UltraFICO score is expected to raise credit scores for at least 40% of consumers with thin or new credit files by 20 points or more. If applied in the mortgage space, this could provide an opportunity to serve first-time homebuyers and help those who have suffered financial distress in the past get a second chance at homeownership.

Better yet, seven out of 10 consumers in the U.S. who exhibit sound financial behavior in their checking and savings accounts see an UltraFICO score that is higher than their traditional FICO score. This bump can go a long way toward helping consumers improve their credit, and ultimately invest in themselves and their families by getting on the path to homeownership. Consumers who are right on the cusp of qualifying for a mortgage could have the chance to showcase a more comprehensive view of their financial health by opting into a new score that provides more insight for lenders.

Better gauging risk

Consumers aren’t the only ones to see major benefits from the UltraFICO score. Beyond increasing credit access and financial inclusion for millions of people across the U.S., the UltraFICO score also introduces a number of advantages for lenders.

Credit history has long been considered the gold standard for determining a consumer’s financial health. In addition to leveraging such information, lenders also have the option with UltraFICO to consider checking- and savings-account histories for the first time, allowing for greater precision in a national credit-scoring system than ever before.

At the end of the day, lending decisions hinge on potential profitability. And one of the first factors lenders consider when determining profitability is risk. By using UltraFICO scores to integrate cash-flow dynamics into a consumer credit score, lenders have the opportunity to better gauge risk — and thus make faster, more competitive and profitable lending decisions. The realtime data made available to lenders through the UltraFICO score provides an improved look at potential borrowers.

And a potential increase in credit scores may mean more lending opportunities for consumers and, ultimately, a boost in business. Perhaps even more importantly, lenders and the originators who work with them could have greater engagement and transparency with a more inclusive credit-decision process, building lasting loyalty with their clients.

Underserved populations — such as millennials and those new to the U.S. — could enjoy greater financial inclusion thanks in large part to the advent of the UltraFICO score.

Unlocking potential

The UltraFICO score is set to deliver benefits across an even larger scale at the conclusion of its pilot program. This testing period is not only helping showcase the potential of the UltraFICO score, but it also is helping to uncover insights and improvements that can be made to ensure continued success moving forward. Identifying and solving for issues that might emerge later on could help ease the concerns of lenders and increase UltraFICO score adoption rates.

These insights and improvements are key to unlocking the potential of the UltraFICO score for use in mortgage lending. In addition to the promise of increasing financial inclusion, there is a natural fit with the existing mortgage origination process: Unlike some other U.S. consumer lending markets, consumers are already acquainted with submitting their checking- and savings-account histories when being considered for a mortgage. The UltraFICO score pilot is already available for use in nonconforming real estate loans. Meanwhile, there’s also an opportunity to use the score for mortgages held in portfolio or private-label securitization efforts.

Moving forward, testing the score in the conforming mortgage market, and getting the approval of regulators and the government-sponsored enterprises (GSEs), will be another important step before it is made available to mortgage lenders across the country. The Federal Housing Finance Agency is currently considering new regulations for the credit-scoring model used by the GSEs in conforming mortgages and has laid out a pilot process by which new scoring innovations can be tested. The UltraFICO score will be an ideal candidate for this pilot process.

Underserved populations — such as millennials and those new to the U.S. — could enjoy greater financial inclusion thanks in large part to the advent of the UltraFICO score, making it a true win-win. By leveraging consumer-permissioned data, the UltraFICO score stands to increase access to loans for the most consequential life investments, like homes or cars. Meanwhile, lenders will enjoy a host of benefits, including improved decision-making and an increase in business.

The UltraFICO score is a joint partnership of FICO, Finicity and consumer credit-reporting company Experian. The scoring model was developed by FICO, is electronically read by Finicity and is being implemented within the market by Experian.


  • Steve Smith

    Steve Smith is chairman, CEO and co-founder of Finicity, a leading financial-data access and insights platform enabling data-driven information that leads to smarter financial decisions. Through the Finicity application programming interface, financial institutions and fintech developers can access client-granted financial data to incorporate in financial-management, payment and credit-decision solutions.

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