FICO changing how it calculates credit scores

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Credit scores, which for decades have been based mostly on borrowers’ payment histories, are now going to factor in how consumers manage cash in checking, savings and money-market accounts.

FICO plans to roll out a new scoring system in early 2019, and it’s among the biggest shifts for credit reporting and the FICO scoring system, the basis of most consumer-lending decisions since the 1990s, according to The Wall Street Journal.

Borrowers can contest what they think is inaccurate information in their credit histories but otherwise have little control over their scores. The so-called UltraFICO score will function as an appeal of sorts, likely boosting many applicants with less-than-ideal records. If a traditional FICO score doesn’t qualify an applicant for a loan, the lender can offer to recalculate the score to reflect banking activity.

If applicants have several hundred dollars in accounts they’ve had for a while, and transact frequently without overdrawing, they’re likely to see their scores rise. Applicants will be able to choose which accounts they want considered when the score is recalculated.

FICO said about 7 million applicants who have low credit scores as a result of borrowing histories would likely see their scores improve under the new system. Separately, some 26 million subprime borrowers could end up with higher credit scores, FICO said, with nearly 4 million seeing an increase of at least 20 points.

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