Just as the economy is peaking, consumers with a low FICO could get a higher "UltraFICO", a new score that factors in bank-account activity as well as loan payments.

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

Fair Isaac Corp., 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 ever 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’s 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 new score, in the works for years, is FICO’s latest answer to lenders who have been clamoring for a way to boost loan approvals.

UltraFICO is the latest in a recent series of changes by credit-reporting and scoring firms that are helping boost consumers’ credit scores.

Equifax, Experian and TransUnion last year began deleting most tax-lien and civil judgment information from credit reports. They also have been removing certain accounts in collections, following settlements with state attorneys general dating back to 2015 over how they manage errors and certain negative information on credit reports.

Eight million consumers who had collections accounts completely removed from their credit reports in the 12 months ended in June experienced a credit score increase of 14 points on average, according to a recent Federal Reserve Bank of New York report.

What Can Possibly Go Wrong?

  • We are in the final inning of an economic recovery
  • It would be unusual if bank account balances did not look better
  • FICO will loosening credit standards on top of collections updates

Late Cycle Lunacy

The changes are not meant to weed out applicants. Rather, they are specifically designed to boost the number of approvals for credit cards, personal loans and other debt.

These kinds of changes are best made after market and recession bottoms. By all means give more credit to those who handled themselves well in times of stress.

This is more late-cycle lunacy.

Mike "Mish" Shedlock

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