DBRS: New FICO model will give big boost subprime borrower credit scores

Double-digit score raise?

FICO is going to roll out an new, opt-in version of its credit score model early next year.

The UltraFICO will also take into account the borrower's ability to balance their checkbook or figure in savings and/or money market account behaviors as well.  

By partnering with Finicity and Experian, FICO hopes that underserved, but credit-worthy, applicants will be given a second look by mortgage lenders.

Now, bond ratings agency DBRS published early thoughts on what kind of borrower would benefit the most from the new scoring system — and by how much. A new brief, authored by securitization analysts Paul Fazi and Chris D’Onofrio, finds the UltraFICO will change the average, prime borrowers score by a little, but not very much.

The real impact will come to borrowers lower on the scale. "FICO estimates, with the new UltraFICO Score scoring system, seven million borrowers with little or no credit history could see an increase in their scores," they write. 

"For the 26 million subprime borrowers, many of their scores will increase as well; in some cases, their scores, with the UltraFICO Score platform, could potentially increase by an estimated 20 points," the analysts added. 

Experian considers any borrower with a credit score of less than 669 to be subprime. Finicity is a company that specializes in aggregating real-time consumer banking data directly from bank integrated sources.

According to DBRS, the new score will take into account the length of time subject accounts has been open, the volume of activity in such accounts and any evidence of savings activity. The new score will also be driven by a minimum account balance over some period of time and any history of overdrafts. The score will ultimately represent more of a financial behavior assessment of the borrower rather than the more traditional fact-based assessment. 

DBRS noted it will also be taking the new UltraFICO scores into account when measuring the risk carried by these loans as collateral in subsequent securitization deals.



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