Low Credit Usage
According to recent research, only 33% of adults ages 18 to 29 have a major credit card.
This number may be surprising, however one reason this is so is that millennials are using debit cards overwhelmingly more frequently than credit cards. So, how does this play out for millennial credit scores?
Low Credit Scores
This lower incidence of credit card usage means that it can be difficult for millennials to build good credit scores. Without a good credit score, renting an apartment, getting a loan, or buying a car can be difficult. So, are those without credit cards just out of luck?
UltraFICO Credit Scoring
A new scoring system called UltraFICO, which debuted in 2018, offers a solution to this increasingly common issue.
Generally the consumer credit score FICO (an abbreviation for the Fair Isaac Corporation, the first company to offer a credit-risk model with a score) is based on credit card usage history. This is obviously difficult to develop for consumers who are not using credit cards.
However, with UltraFICO, consumers can improve their FICO scores through additional good-faith inspiring activities like always keeping a few hundred dollars in their bank accounts, and never reaching a negative balance. Even if a consumer does not have a FICO score, they are still eligible for an UltraFICO score, which can help this person who would otherwise struggle to obtain financing or simply not be able to achieve good credit standing.
UltraFICO helps millennial home buyers by taking responsible saving and spending into consideration as demonstrated by checking, savings, and market rate account bank records. It provides lenders with a more complete picture of a consumer’s creditworthiness and gives borrowers a different way to demonstrate creditworthiness.
Poor or Nonexistent Credit
This new scoring system is a huge game-changer for first-time home buyers with poor or nonexistent credit reports. An UltraFICO score is determined by examining 24 months of bank account transactions. Thus the longer a person maintains a high daily average, actively uses and replenishes funds, and avoids overdrafts, the better their score will be, regardless of their traditional credit history.
Opt-In Credit Score
Unlike conventional credit scores, UltraFICO is an “opt-in” credit score.
This means that in order to obtain an UltraFICO score, consumers must give their consent and link their bank accounts to the system, in order for the score to be generated. Some may find this consumer-opt-in approach more appealing than the current system, which creates a credit score at the request of a lender without consumer consent.
Qualify for Better Rates
Another benefit for first time home buyers and other borrowers regardless of original credit status or FICO score is that by opting into UltraFICO, you likely will qualify for even better lending rates than your FICO alone enabled you to access.
The UltraFICO scoring system became more widely available in 2019 and appears to be here to stay. While some lenders and industry pundits express dismay that the system allows subprime rated borrowers to elevate their credit score, increasing investors’ risk and possibly putting borrowers into loan products they cannot repay, overall, the effect is beneficial. UltraFICO helps millennial home buyers and other fiscally-responsible borrowers benefit from this opportunity to use checking, savings, and market rate account histories to establish creditworthiness. It can make it to possible to gain access to financing that helps them purchase a home and build the life they aspire to live.
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