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UltraFICO: Ultra Ridiculous

If you’ve been around here for more than two seconds, you probably already know how we feel about credit scores (Hint: we don’t like them at all). You’ll hear us say it time and time again: A credit score does not show how well you’re managing your money or even if you have a dollar to your name. Instead, it’s really just a score of how well you can play the debt game with the bank. Credit score? More like an “I love debt” score.

But what about its new, shiny cousin, UltraFICO? It’s being bragged about as a way to “empower consumers to get access to loans and credit”. . . also known as a way to keep them stuck in the cycle of debt.

What Is UltraFICO?

It’s ultra-stupid, that’s what it is. Wait—we’re getting ahead of ourselves. UltraFICO is an additional way credit can be checked if someone is turned down for a loan or credit card based on their current credit score.

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Starting in 2019, this new scoring system will look at the balance and activity of checking, savings and money market accounts. And depending on that status, UltraFICO might dish out a bump of 20 points or so. Which could be just enough to mean someone who wouldn’t have been approved for new debt would now be able to get it.

How Is UltraFICO Different Than a FICO Credit Score?

Let’s talk about how a credit score is calculated to begin with. Honestly, FICO keeps their cards pretty close to their chest on this one, so no one knows exactly how it’s factored. But what we do know is this: it’s about 35% your debt payment history, 30% the amount of revolving debt you currently owe, 15% the length of your credit history, 10% any new credit you take on, and 10% the types of credit you have.(1)

Say you’re going to open up a credit card or a personal loan. With the traditional method we all know (and love to hate), your FICO credit score would be checked to see if you qualify. In the past it’s been a simple “yes, you’re up to par” or “no, you don’t cut the mustard.”

But with the new UltraFICO option, if you’re denied, you can ask for your UltraFICO score to be pulled. You’ll be opting in to having your checking, savings and money market accounts looked at in order to try and get the boost you need to qualify.

How Is an UltraFICO Score Calculated?

This comes down to a couple of factors—and none of them have anything to do with debt. That might seem like a good thing at first, but don’t be fooled.

Your UltraFICO score is calculated by the length of time you’ve had your bank accounts open (checking, savings and money market) and your activity in them. It scans for things like do you overdraft often? Do you have direct deposits from your paycheck? Do you make it a habit to have a little bit of money saved away?

And here’s the real kicker—you have to have at least $400 in your bank account.(2) Because, you know, that somehow means you’ll be able to make the monthly minimum payments on a credit card with a $5,000 credit card limit (while the interest racks up). . . because, math? It sounds ridiculous, and that’s because it is.

Is UltraFICO Good or Bad?

It’s sleazy. It’s shoddy. It’s sketchy. It’s just plain bad.

Oh, the things we hate about UltraFICO. Let us count the ways:

1. It traps more people into debt.

While FICO and friends want you to think this new method is going to “help” people by giving them access to credit cards and personal loans, we know better. Debt is debt. It hurts more than it will ever “help,” no matter how you slice it.

The UltraFICO system opens up the pool to an even wider group of people. That means people who might’ve otherwise been protected from accruing new debt are now going to be approved and primed for being lured into the trap of debt. And that should make us all angry. Really angry.

2. Having only $400 in your bank account does not equal financial security.

It’s comical to even think about dishing out a $5,000 credit line to someone with only $400 in their bank account. Is this what our society is now considering stable? Hey, as long as there’s $400 in your bank account, feel free to take out that $10,000 personal loan to pay for a wedding or fund a vacation trip! You’ll clearly be able to pay it back. WHAT!?

There’s a better way! In The 7 Baby Steps, Dave says you should have at least $1,000 saved in your emergency fund. Sorry, but $400 probably isn’t going to cut it when an unexpected emergency hits you. Depend on yourself to be financially secure, not a credit score.

3. Banks are going to “make bank” while you go into debt.

When it all boils down, this is just an artificial way to lift someone’s credit score to make them eligible for credit cards and loans. And who profits from that? The banks and the lenders. They’re not stupid. They’re betting on the chance people won’t be able to pay their debts in full each month so they can slap them with higher interest rates.

4. Loaning money to people who can’t pay it back sounds very 2008.

Hey, the 2008 housing crisis called and wants to know what the heck these guys are thinking. Did we not learn anything from what happened 10 years ago when people couldn’t afford the loans they took out on their homes?

Psst: Did you know you can get a mortgage without even having a credit score? Look for a company that still does manual underwriting. It’s basically just the process of making sure you’re a responsible human who pays their bills and has a job. Instead of relying on a credit score to “prove” you’re eligible to buy a home, they’ll check to verify employment, income and your payment history on things like utilities and rent.

Remember, there are other ways to prove you pay your bills that don’t require you to have debt.

5. Unnecessary exposure to identity theft is never a good thing.

Okay, aside from all the other red flags here (and there are plenty), do you really want to give the powers that be access to your bank account? That opens up an extra “opportunity” for identity theft! While credit companies would like for us to believe they’re immune to threats like that, we all remember the huge data breach Equifax was a part of. You know, the one where 145 million people’s personal information was exposed?(3) Yeah, that’s kind of a big deal.

What They Don’t Want You to Know: You Don’t Need a Credit Score

Despite what you’ve heard all your adult life, we’ve got news for you—you don’t need a credit score. Think about it! No matter what UltraFICO says, the only way to maintain a good credit score is by going into debt and staying there. And that isn’t a solid plan for your money. If you follow our plan, get out of debt, and don’t take on any new debt, you don’t need a credit score. It’s as easy as that. Really.

As you pay off your debt (and never take it on again) your credit score will eventually end up being “undeterminable.’ That just means there’s no credit information or history to report about you. Why? Because you have no debt!

So, how do you get by in life without having a credit score? It’s simple. And maybe even a little radical. Only pay for the things you need with the money you already have. A crazy thing happens when you stop owing people money is, you get to actually keep the money you make, so you can build wealth—not your credit score.

What Does All This Mean for 2019?

As the Wall Street Journal reported, “FICO said about seven million applicants who have low credit scores as a result of thin borrowing histories would likely see their scores improve under the new system. Separately, some 26 million subprime borrowers will end up with higher credit scores, with nearly four million seeing an increase of at least 20 points.”(4) And borrowers with a credit score in the 500–600 range will see the biggest bump when it comes to their new UltraFICO score.(5)

This means that a good chunk of people who weren’t able to take on debt (due to their not-so-great credit scores) will soon be able to open up credit card accounts and receive personal loans just by signing on the dotted line. Now let that one sink in for a second.

If it sounds kind of terrifying, that’s because it is.

And remember, these new borrowers are “subprime” borrowers for a reason. They’re already hurting! So why add insult to injury by taking on more debt?

Now, is it a good thing that lenders are actually looking at the ways people handle their money to judge their behavior and not just looking at their credit? Sure. Way to go banks and lenders! You’re actually taking people’s money habits into consideration instead of just how they interact with debt! But we still see right through you.

Lenders aren’t dumb. Approving credit card applications and personal loans for people they know will struggle to make payments just means one thing: more money in their pockets.

Bottom line? Don’t fall for this UltraFICO ultra-nonsense. It’s a trap! Don’t let other people (especially banks and debt wielders) decide your financial score—ever. Not even if it’s packaged in a “lipstick on a pig” kind of way like this.

Are you ready to stop relying on debt to make ends meet? Learn how to handle money responsibly and get through life without loans or a credit score. (Yes, it’s really possible!) Our proven plan Financial Peace University will guide you along the way.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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