For the millions of American consumers whose traditional credit files don’t fully reflect their financial history and readiness for credit, cash flow data provides a promising approach to fill in those gaps. FICO has been the pioneer in incorporating data from outside the credit bureaus, like cash flow data, to obtain a clearer and more accurate picture of consumer financial risk. But the optimism around the potential of incorporating cash flow isn’t limited to FICO – we’ve been excited to see recent initiatives by the government-sponsored enterprises, for example, to consider cash flow as part of mortgage underwriting.
The UltraFICO® Score, which debuted as a pilot program in partnership with Finicity and Experian in the fall of 2018, considers an individual’s consumer-permissioned checking and savings account data to enhance their FICO® Score. We found that approximately 7 out of 10 consumers in the U.S. who have recently had consistent cash on hand and kept positive balances in their accounts could see an UltraFICO Score that is higher than their traditional credit score.
The data reflected in the UltraFICO® Score may improve an individual’s already-existing FICO® Score, but it also can provide credit scores to many individuals who are “unbanked” or “under-banked,” or those who have not had consistent or sufficient access to mainstream financial products, loans or services. Among consumers who don’t have enough credit history to generate a traditional FICO Score, over 15 million could receive an UltraFICO Score. These gains are particularly significant for consumers with new or sparse credit files (such as young people and new immigrants), and they can also help consumers who have previous delinquent payments or derogatory information on their file recover from those bumps in the road. Helping this group of Americans take the first steps on the ladder to mainstream credit scores, products and loans is crucial to ensuring they can benefit from the consumer protections of the traditional financial system.
What’s more, unlike some fintech initiatives that assess risk based on cash flow data alone, the UltraFICO® Score presents the best of both worlds, combining cash flow data with traditional data from consumers’ credit files, along with the odds-to-score ratio that lenders understand. This approach helps reduce risk for financial institutions, offering expanded access to credit along with reliability and predictive power.
While innovative new scoring models that incorporate alternative data from outside the traditional credit file, such as the UltraFICO® Score, can help reduce risk and increase access to credit, they are just one component of a much larger equation. Enhancing financial education and planning, as well as addressing structural barriers such as access to affordable housing, are also necessary. Only this kind of multi-pronged solution, with all stakeholders coming to the table together, has the potential to truly sustain upward mobility overall for those who have struggled to gain access to the mainstream financial system and ultimately expand access to credit to more Americans.
