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How The New UltraFICO Score Could Help You Get A Better Car Loan
How The New UltraFICO Score Could Help You Get A Better Car Loan-October 2024
2024-02-19 EST 22:09:47

Unless you are buying a beater car off Craigslist with cash, your FICO credit score is a key determining factor as to whether you get approved for a car loan and how much interest you will pay. Now a new score, , is coming, and that could help a lot of people get approved at better rates.

For those of you who are unaware, your FICO score is essentially a responsibility rating for lenders. Banks don’t want to lend money to people who may not pay them back, and thus riskier applicants generally get higher interest rates. This is true of cars and anything else you’d want to finance, really. There are three major credit reporting bureaus— Experian, Equifax, and TransUnion—and each of them give consumers a score based on a few key areas such as payment history (paying your bills on time), age of your accounts, derogatory marks, and usage (how much credit you are using vs how much you have available.

But according to the , a new kind of credit score called UltraFICO is being rolled out to help more people qualify for better rates. The UltraFICO will take a look at an applicant’s banking history and wealth to help determine creditworthiness.

From the story:

If an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity.

Would-be borrowers with at least several hundred dollars in their accounts, who have had the accounts for a while and who transact frequently and don’t overdraw are likely to see their scores rise, FICO said.

Traditionally someone who has money but doesn’t use a lot of credit may be at a disadvantage when applying for larger loans. This applies to younger folks who simply don’t have a lot of age on their credit accounts to help establish a history, however, these people may be managing their current finances responsibly.

Our friends at have an excellent breakdown on how this will impact creditworthiness as a whole, but here are a few scenarios on how this new score could impact a car loan:

Person A just graduated college and scored a job with good pay, and it’s time for her to upgrade that old ride she has been cruising around in since high school for a real grown-up car. However, she hasn’t had a credit card for very long and maybe missed a few payments for being while she was in college. She goes to a dealer to apply for a loan and FICO score comes back low this means that she either needs to accept a higher rate or bring in a co-signer.

Person B has been using the “always pay cash” philosophy for car buying. But he is getting tired churning through Craigslist beaters and wants to treat himself to something new, but this is going to require a loan. Despite the fact that he has plenty of cash in the bank, he doesn’t have an established history of borrowing money and paying it back. He thought he was doing the “responsible” thing, but the banks still see him as a risky applicant.

In both cases, the UltraFICO can be used to look at their banking history, savings and income stream to give these folks a boost on their score.

From the WSJ:

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, FICO said, with nearly four million seeing an increase of at least 20 points.

So in essence, if your credit hasn’t been great for whatever reason but you’re doing well at the moment cash- and savings-wise, UltraFICO could be a boost to helping you qualify for a good rate on a car.

Playing the credit game is tricky and one mistake can set your score back quite a bit and it takes exponentially longer for the score to rise than it does to fall. This UltraFICO program could open up better loans for these folks, .

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