It might not sound like a big deal, but the FICO score is getting an upgrade.

In early 2019, Fair Isaac Corp, the creator of the FICO credit scoring system, plans to launch a new scoring metric that measures a new set of criteria in different ways.

It is called UltraFICO. Yes, that means a new score, which will rank your financial and credit health a bit differently from what you’re already being assessed with.

With that said, you’re probably wondering what this new FICO score will mean for you. Are you going to have a tougher or easier getting loan approvals? Will your credit score suddenly drop or climb?

Here’s a deeper look at what UltraFICO will do.

UltraFICO In the Flesh

This new scoring system will factor in how you manage the cash in your checking, savings, and other money-market accounts. Essentially, it’s going to analyze your more immediate financial habits to get a picture of how much risk you present to creditors and lenders.

UltraFICO has been in the works for several years now, and it stands as one of the biggest changes in how the agency has conducted its creditworthiness rankings over the years.

A Graduation From Payment History

Of the five ranking factors, credit bureaus use to assign credit scores, payment history carries the most significance. In fact, 35% of your credit score comes from your payment history alone. If you need a refresher on your credit score breakdown, just take a look below:

As you can see, payment history is a big deal. That’s why you’ve most likely heard the advice to never miss a bill payment neither pay a bill late. It will eat away at your score.

With UltraFICO, your payment history stills matters. But it appears that some emphasis will be shifted off of your payment history, and onto your overall management of money. Behavioural patterns seen in one’s checking and savings account, for example, could give rise to how (and when) a person deals with their bills or debts. This is more immediate than what one’s payment history would suggest.

This is advantages over using payment history as the dominant metric because credit bureaus often carry inaccurate or outdated information on someone’s record. For example, a delinquency (ie. collections, late payment) that should have been removed years ago may still linger on someone’s record. If that’s the case, it will lower their score and reduce their chance of getting approved for certain loans.

But a more levelled look at someone’s finances, including their daily or weekly balances, can give lenders a better picture of their clients.

But Why the Change?

Back in August 2018, the topic of a country-wide, consumer credit boost made headlines in financial news segments. Millions of people around the country would see their credit scores going up (assuming they were checking) because the major credit reporting agencies would change how they handled credit report info. Of course, there were some celebrations afterwards.

All this undoubtedly had something to do with this new FICO update (perhaps was secretly responsible for it).

But why? Why did the credit reporting agencies make such an effort to help consumers boost their credit scores? Well, nearly 10 years after the recession, the economy has seen significant improvement, but more specifically, credit scores across the country have improved quite a lot as well. In fact, the average FICO score in the U.S. has reached an all-time high of 704. And you know what that means – banks and lenders are looking to boost their output of loan approvals to people with prime credit scores (which starts in the 700s).

A boost of just 20 or 30 points can push a customer who’s score is below the minimum qualification for a loan above that minimum. And in many cases, an approval for a loan can be life-changing.

With an updated FICO scoring system in place, one that puts less stress on one’s payment history, it’s possible that many people who still have healthy spending/saving habits can get approved for loans. Lenders will start to look at consumers’ transactions as a means of determining how account holders will repay (which is also a crucial factor).

The most important thing, of course, is for individuals not to get carried away with these new arrangements – they still need to put credit-building habits in place.

Who’ll Benefit Most From UltraFICO?

It’s a safe bet to say that anyone who pays their bills on time, has a good mix of credit and keeps their debts/balances to a minimum will benefit from UltraFICO. These folks will have great scores no matter what system is used. However, UltraFICO will come in handy for a few individuals as outlined by one FICO representative. They include:

• Self-employed individuals
• Millennials (especially younger ones who don’t have an extensive credit history)
• Immigrant entrepreneurs (who have no credit history in the U.S.)
• Migrants and remitters
• Individuals who are recovering from financial troubles and distress

There are also a few things to keep in mind for both the pre-launch and launch of the new FICO-scoring system:

• The last update – FICO 9 – came out in 2016, but most lenders still use FICO 8, which means that medical debt, paid collections and tax liens still hurt credit scores
• When UltraFICO rolls out, consumers with an average balance of $400 who haven’t overdrawn three months before will probably see a credit boost
• Although specifics have been given yet, FICO reps say that the rollout will also lead to a decrease in some credit scores

UltraFICO To the Rescue

The rollout of UltraFICO will seem like a blessing for many. This is particularly true for those who are recovering from financial problems, have little or no credit history and those who are on the threshold of having a good credit score. It will focus on factors other than just payment history, but of course, that doesn’t mean customers can be lax with their bill payments. If anything, it’ll just nudge them toward a better credit score if they’re already close to having one.