Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Fair Isaac Corp., the architect of the well-known FICO scoring model, plans to roll out a new scoring model that is getting a lot of attention of late. The maker of the most widely used credit score announced a new metric called, “UltraFico” that considers how a consumer manages their banking activities – such as checking, savings and money market accounts – in addition to how they pay their credit cards and loans.
Traditionally, a borrower’s credit-worthiness has been calculated based on payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Under this new method, Fair Isaac will factor in a person’s ability to manage their liquid assets and how they maintain minimum balances and cash-flow. As far as the new valuation process, Fair Isaac says that the most significant factors of consideration will be a consumers average account balance as well as their history of overdrawn accounts.
Analysts believe that those who maintain an average balance of $400 and show no negative balances in the previous three months will benefit by as much as 20 points more according to experts. Additionally, having more incoming deposits than outflows, having an account open and active for a considerable period and regularly paying bills such as utilities and rent from these accounts will add to more favorable scores.
One of the three main credit bureaus, Experian, will access a person’s personal bank account data and send a rating, plus a summary of your bank accounts to the lender for further evaluation. Experian will maintain the bank account data to address any accuracy disputes. For those that don’t remember, Experian was the company whose data breach exposed 123 Million U.S. household information not too long ago.
Those opposing the new credit profile method believe the system is intrusive and overreaching into personal patterns and lifestyles. Indeed, the expansion of monitoring people’s behaviors and activities are pushing well beyond credit and loan repayment patterns alone. Last year, a Wisconsin technology company began embedding microchips into its employees to track their doings and help them be more productive and efficient at work. According to a report from CNBC, future versions of the microchip could include GPS, which won’t be removed, even if an employee leaves the company.
Wait, there’s more. According to many news agencies, including a report by Business Insider, China is rolling out a nationwide “Social Credit” system, where people will be ranked, rewarded, and punished for their behavior. According to the article, the social credit system will be a significant extension beyond a person’s financial credit score and will be mandatory nationwide by 2020. Instead of just tracking financial performance, people will also be ranked on their trustworthiness, day-to-day decisions and behaviors irrespective of where they are.
Regardless of where you fall on the issues of personal profiling and privacy, the world is certainly changing in this regard. When regulators, financial institutions, and large corporations start incorporating these methodologies into the mix, it will be hard to circumvent the requirements. In the meanwhile, it seems prudent to make sure your personal, credit, banking, financial and employment “reputations” are in check!
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