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Short Summary
Main recommendation: Treat the new ultra FICO score as a useful but risky expansion of credit access, especially for people with no credit history who still have strong cash-management habits. Graham Stephan argues it can help people like his younger self, but warns that its requirements are too low and could loosen lending standards that have worked well since the 2008–2009 recession.
Key Points
- The ultra FICO score is an optional, additional score that lenders can use when a borrower is denied based on their traditional FICO score, starting in 2019.
- It takes into account a borrower's history of cash transactions, including how they manage checking, savings, and money market accounts, their average balances, and whether those accounts have ever been overdrawn.
- Stephan says the traditional FICO score, which lenders have relied on since the early 1990s for about 90% of credit decisions, creates a catch-22 for people with no credit history.
- He notes FICO's stated position: the change is meant to fill gaps in an underserved market and boost approvals, not to weed out applicants — though Stephan remains personally skeptical.
- His main concern is that the qualifying thresholds are too easy to meet, which could encourage lending to people who should not receive loans.
Details Worth Noting
- Concrete instructions: The video gives no step-by-step process for using the ultra FICO score. Stephan mentions his usual advice for building credit without it: put down about $300 for a secured credit card, pay it off on time for six months, then apply for an unsecured card later.
- Concrete instructions: Stephan's example of the low threshold is an average balance of at least $400 with no overdrafts in the prior three months, which he says would likely earn a boost. He suggests a stricter standard, such as a much higher average balance and a longer overdraft-free period.
- Stephan's own situation at age 21: he had bought everything in cash, had over $100,000 saved, had a checking account since age 15 with no overdrafts, and was still denied mortgages for lacking credit history.
- FICO says lenders still consider income and debt-to-income ratio alongside any score, which Stephan believes limits how much the new score will change outcomes.
- Stephan warns that regulators may ease lending rules during a strong economy with record-low unemployment and record-high consumer loan balances, which he considers risky.
Bottom Line
The ultra FICO score may open credit to financially responsible people with no traditional credit history, but its low thresholds could weaken lending standards at a risky point in the economic cycle.
