If you thought the good news was over, think again. Last year, a number of credit reporting companies came to a consensus with regards to negative reporting. As a result, many consumers have reported an increase of at least 40 points in their credit scores.
However, that is only the tip of the iceberg. Next year, you can expect a further rise in your credit score.
Why the increase? Read on to find out why.
What Is a Credit Score?
A credit score is a number assigned to a person is used to determine the likelihood of you repaying a debt. The scores go from as low as 300 all the way to 850. If you have score of about 700, then you have good credit and can qualify for loans easier with favorable interest rates.
What Is Causing the Change?
UltraFICO. That’s the new program ready to launch next year, and it will be responsible for the rise your credit score will experience. Although the program is still in its pilot stage, it is set to have a positive impact on your score. This is possible because the program will consolidate data from both your savings and checking accounts.
After consolidation and analysis of the data, if you show a reliable and trustworthy trend of financial responsibility, then your credit score will rise. Some of the factors that will influence the result include the age of your bank account and whether you have a savings habit, among others.
However, this program is optional. This means consumers will have to make a choice of whether they’d like to share their information in order to receive favorable terms and options.
How Your Credit Score Will Improve
Different consumers’ credit scores will be affected by this change. For example, those with a poor score or no credit altogether will witness the greatest impact. This is in contrast to those with good credit, who will only see a small impact on their scores.
Four million customers will see a rise of about 20 points in their scores. This data is courtesy of FICO, the Fair Isaac Company. On top of that, Fair Isaac says scores are bound to rise for consumers who display a savings trend of about $400 without any negative balances for the last three months.
What is the Aim of the New Program?
UltraFICO score aims at helping consumers to incorporate better financial trends when it comes to making critical lending decisions. With this program, a number of lenders—including American Express, Wells Fargo, Capital One, Citi, JP Morgan Chase—who offer credit cards, mortgages, personal loans and student loans could suffer because there are a number of consumers with limited to no credit history, but still have income and cash to repay loans who will be able to obtain loans.
.
However, there’s two sides to the coin. First, a number of experts argue that the program is a good move since it will open doors to many consumers who didn’t have access to bad credit loans : see more about service that can help find a bad credit lender here even your credit score don’t rise after that artificial boost – www.realisticloans.com/personal-loans/loans-for-bad-credit . Nevertheless, they have reservations regarding to whether the consumers have the capacity to limit their appetite for credit.
According to the New York Fed, American’s debt hit the $13 trillion mark showing the growing appetite for consumer loans. With such statistics, lenders are grabbing every opportunity to issue loans, while banks are entering this space with new vigor, despite the obvious risks involved.
How to Improve Your Credit Score
Your creditworthiness is an important factor to lenders, and it’s determined by your credit score. The latter will be the final factor when it comes to auto loans, personal loans, student loans, mortgages, etc. The score will also determine the type of interest rates you’ll get.
One of the most common scores used is the FICO which runs from 350 to 800. The higher the score the better for you. Anything less than 600 is weak, and a score above 750 is considered good, but how can you improve this score? The following pointers will offer a way forward.
- Make consistent and on-time payments.
- Make sure your credit utilization ratio stays below 30%.
- Maintain a low debt-to-income ratio by clearing any debts or increasing your income.
- Consider taking out a personal loan to consolidate all debt.
Conclusion
The UltraFICO score is a fantastic program, but it has received a fair share of criticism from major stakeholders in the lending industry. However, the bottom line remains that consumers and lenders have to take precautions when taking out and issuing loans.
For borrowers, it’s vital to analyze your financial situation before borrowing. It’s also important to understand the key factors involved in taking out loans, such as interest rates and repayment terms.
