Several FICO score models have been introduced in the past 15- 20 years, most of which were better alternatives than the current FICO model that banks use today. However, due to GSE’s (or Government-sponsored enterprises like Freddie Mac & Sallie Mae) not approving these new models, they have and will continue to remain on the shelf. But this time it’s different; the new Ultra Fico will very well be the new scoring model in the near future. And it’s being announced and promoted as all things good… Warning! It’s not all rainbows and unicorns – not even close. Allow me to be the first to show you what’s behind the curtain.
What is the new Ultra FICO and how is it different?
The new Ultra FICO will, for the first time in history, incorporate data into its algorithm concerning consumers’ banking behavior to calculate a score. This data will include the length of time their bank accounts have been open, the frequency of activity, and evidence of saving—in addition to their payment practices. The new Ultra FICO will be an enhancement to the current scoring model in which the consumer grants permission or “options in” access to his or her financial data.
The three partners of the new Ultra FICO include Experian, FICO, and Finicity. They boast that this new score has the potential to improve credit access for many Americans and assert that it’s particularly relevant for those with current credit scores in the upper 500s to lower 600s. Consumers with limited credit history or those with previous financial distress could also benefit.
This trinity of Experian, FICO and Finicity, is the perfect partnership for launching this new model. For example, Experian is already in the business of reporting consumer credit history and FICO with its proprietary scoring model – who holds the current algorithm under lock and key – is the only model approved by the GSE in the last twenty years. Lastly, Finicity has been able to one-source consumer financial data by integrating through financial data API’s by developing more than 15,0000 bank, wealth management, and credit card integrations thus giving it broad market coverage. They then utilize these advanced analytics and data intelligence to deliver rich financial insights, making Finicity the missing link to what the finance and collection world once dreamed of. This new introduction of data, despite all of the risks, will be incorporated into the current FICO making the transition to the new Ultra FICO near seamless.
Why will the GSE approve Ultra FICO?
Let’s start with why they didn’t approve previous FICO score models in the past despite proof that these models were able to give a more accurate risk assessment than the current model. It seems counter intuitive that the GSE’s wouldn’t approve a model when the Creator himself boasted of its accuracy. So why wouldn’t they give their approval?
Billions and billions of dollars’ worth in loan portfolios are hedged, valued, and purchased by these GSE’s – those responsible for the rejection of new scoring models – from the lender’s who originated them. And the value of those portfolios is estimated based on the current FICO. Consequently, this has caused FICO’s current model to become a monetary unit. Changing the model could affect the value of these portfolios almost instantly causing total disaster. This would be like changing how many inches are in a foot after you’ve purchased a 60-foot yacht. However, this time is different as FICO isn’t changing their model but simply enhancing it. It’s also coupled with a nice big incentive for the G in GSE – I’ll bring light to that incentive to the government shortly.
So, what’s the problem with this? Risk to the broker.
I want to speak first to the loan originators, mortgage brokers, and lenders. There is a pilot program that is being launched in January of 2019. You’ve probably already heard the good news of this “unholy trinity” (Experian, FICO, and Finicity) and how they’ll bring prospects of closing more loans and the ability to service more potential clients. You’re hearing words like “enhancement” and phrases like “potential to improve client scores.” Keying in on a solution for clients that currently have limited or no credit and those in the marginal score range may “potentially improve their scores.” Let me enlighten you on a never-changing statistic: 75% of Americans live paycheck to paycheck regardless of income and credit scores. I’d expect the banking accounts of those American’s would also reflect that statistic. I imagine with minimum daily checking account averages and an occasional overdraft fee – your client that was in the grey area could be “enhanced” into a renewed lease. All of this sounds great and yes, some clients may benefit. However, the same information that you are asking your clients to option-in to can also drop their credit scores.
Here’s something else to consider: Finicity is backed with “Consumer Permission Data” which gives financial institutions permission to access consumer accounts. This allows the institution to use their own database and electronic loan application to establish a pre-approval in seconds. This eliminates the verification process, need for gathering multiple documents, etc. Tasks that are all normally handled by the broker, loan officer, or lender. Thus, Finicity is potentially eliminating the need for the broker, loan officer, or lender.
What’s the risk to the consumer?
Besides the fact that the consumer will be handing over even more vital information – including credentials for their banking, savings, and other accounts – but that they’ll be handing it over to the same company that was hacked less than two years ago. We’re talking about the largest data hack in history in which the majority of Americans had their identities stolen from Equifax. And to top it off – that information was never recovered, and your social security number is still the same! I believe that there is an even bigger issue ahead. Optioning in your information will, for the first time in history, allow the government, state and local agencies, marketers, and collection agencies to freely see your private financial information without any sort of disclosure. Not only are they allowed to freely view this information but now they have access to a database that tells them exactly where to find it. Currently, there isn’t a database with real-time banking data that would show where a consumer banks or how much is in their account but rather it’s gathered information.
Our fore fathers fought hard to pass the “Right to Financial Privacy Act” in 1974 with the purpose to protect consumer records maintained by financial institutions from improper disclosure to federal government officials or agencies. The Act includes that the federal agency must provide a notification to the consumer before records are sought after. “Optioning in” to the Ultra FICO will absolutely allow them to include your personal financial information on your credit report from the credit bureaus. And if you weren’t already aware, you are currently “optioned in” to allow marketers, collection agencies, etc. to prescreen and monitor your credit. You were born optioned in. I don’t know why’d they call it that when you weren’t given an option. Although, you can revoke access to prescreen and monitor your credit, but you must “option out” of it. I’ll discuss this in more detail later in the blog.
Know that Fico and the credit bureaus aren’t solely in the reporting and risk assessment business. They are also in the business of selling information and I don’t mean just the selling of bureaus or the amount FICO gets every time their score is used. They are selling consumer information, data, analytics, and filtered, prescreened lists to marketers, advertisers, and collection agencies. For example, if I’m a car dealer looking for a list of people that live in a specific zip code with a credit score between 640-660 and who’ve bought their current car three years ago – I could get that list from FICO. There are people constantly checking your credit report and this is typically for “promotional reasons” or to see if you are “pre-approved for special financing offers” – but unfortunately there are others out there doing the same but with more malicious intent.
You don’t have to dig very far to find that collection agencies are the main culprit behind these “soft inquiries.” Collection agencies are huge credit bureau customers and with the help of FICO they’ve created software that continually monitors consumers and prioritizes the potential of a consumer to pay their debt. For example, a monitored client has applied for a mortgage loan. This triggers a high priority alert to the collection agency and increases the value of that consumer’s older debt. The collection agency buys the debt knowing that the consumer is now more likely to pay it in order to qualify for their home loan. It’s a fact.
Now imagine adding your personal financial data to the wealth of information being sold to these slime-balls. (i.e. collection agencies) You might as well put it on a silver platter for ‘em! The only way you’re safe from them is if you’re dead broke. Then maybe they’ll decide it’s a waste of time trying to collect from you. Keep this in mind: If any car lot or hole-in-the-wall collection agency can monitor your credit, then you can bet that so will the government. And with all this information they can easily code it to fit their needs and plug that into data driven programs that can help flag any creative tax returns.
The greatest collection trap the world has ever seen… If you’ve ever had a tax lien, or judgment or bad debt don’t skip this next part.
It’s not just a coincidence that earlier this year they were able to pass a motion to have judgments and tax liens withheld from consumer credit reports – boasting that it was strictly to help the consumer. In all actuality, it just means that now mortgage brokers must pull this information from a new source (Lexis Nexis). Let me show you how all this will play out:
The consumer crawls out from under a rock thinking that their debt has been mysteriously forgiven – or maybe they just never realized they had a court-ordered judgement against them. They aspire to become that which was once impossible: a home-buyer. However, in spite of their approvable credit score, the mortgage lender alerts the client of their outstanding judgement or lien and the client is then forced to renew their lease. Then to top it off, the lender just gave the owner of said judgement/lien real-time information to freeze and collect.
You think it’s only a coincidence that new collections hit right after a customer applies for home? Think again! They trigger off the inquiry. And now they are going to turn the whole mortgage business into a collection trap.
Everything about this new model is going to sound great and many or most lenders are going to drink up this Kool-Aid. And with good intentions, they are going to encourage you to do so as well. You could consider it the biggest sales job in the world to encourage people to option-in their information. It’ll probably be very easy to do with a simple signature at the end of a credit app. Remember that one signature you gave without reading the disclosure first? Yeah, that one. I mean who reads those disclosures anyways!?
Most lenders, mortgage brokers, and loan officers I know truly seem to have a heart for their clients and are motivated to help their clients realize their dreams. If you take the different points I’ve highlighted here in this blog and do a little research of your own, you’ll quickly connect the dots. My hopes are that I can be a thought leader on this and enable you to make an informed decision on whether you should or shouldn’t option-in to Ultra FICO. I’m praying you choose the latter. Also, please spread the word to friends, family, and colleagues. We need to get this information out to people since it’s not being readily made to them!
What do you do?
1. Option out. I’ve included a link here that easily allows you to do so.
By optioning out, you are telling the bureaus that it’s NOT okay to sell your information and you DO NOT authorize any pre-screening or monitoring. Remember that you are born optioned in, (you can read more on this by visiting my blog here) and you may have to do this step again in five years.
2. Do not option-in to the score enhancement part of the Ultra FICO.
I’ve given you every reason not to. You’ll also need to double check all your credit apps to make sure you aren’t giving authorization there. Matter of fact, there should be a spot where the consumer would have to sign to do so. I suggest instead of leaving that area blank to write “DO NOT OPTION ME IN” just incase some ding-bat salesman is on auto pilot.
Finally, focus on your credit health so that the enhancement isn’t needed. The only reason this should entice anyone in the first place would be due to the prospects of raising your credit score. I can show you many tried and true methods that WILL (not potentially!) raise your credit score so that this won’t even need to be considered. Just give a call to our offices or email me directly to discuss any credit situation you might have.
Despite everything you may have read or heard, expect this Ultra FICO to become a part of the lending process as all the right forces will be behind it. The transition should be seamless as it’s being added and promoted as an enhancement. Regardless whether the intentions behind this product are good or not, you can count on it being a major tool for Big Brother and others to exploit. I close with this: Do not be enticed to trade away your rights, privacy, and freedom for a few extra, measly, POTENTIAL points to your credit score.