The news: FICO has partnered with Plaid to incorporate cash flow data from consumers’ checking, savings, and money-market accounts into its UltraFICO Score. The updated scoring model is designed to give lenders a more comprehensive view of a customer’s creditworthiness than legacy credit files indicate.
How it works: Consumers who connect their bank accounts to Plaid allow it to aggregate income and expense data, better informing credit scores with activity that’s not directly related to loans.
Why it matters: Credit access appears to be tightening. Rejection rates on new credit applications reached a series high of 24.8% this June, per the Federal Reserve Bank of New York’s SCE Credit Access survey, while the share of discouraged borrowers rose to 8%, versus 6.6% a year ago. Gen Z borrowers may be particularly vulnerable to tighter credit. Scores for younger borrowers dropped 69 points on average after student-loan delinquencies re-entered credit files, and nearly 30% of consumers with federal student loans were delinquent by more than 90 days.
What’s changing: Credit scoring models are evolving alongside consumers’ financial pictures. Here are three examples:
Our take: Credit scoring has long been a catch 22: Consumers who have credit products can access more, but those who don’t are less likely to be approved.
Yet in a short time, scoring has evolved to better reflect consumers’ everyday financial behaviors and their willingness and ability to pay. This should get more credit products into more consumers’ hands.