FICO and Plaid launch new credit score using cash flow data.

2 days ago7 min read7 comments

For the millions of consumers who are financially responsible but credit-invisible, navigating the labyrinth of loan approvals has always been a frustrating paradox. You could have a healthy savings account and a steady income, yet still be denied for a mortgage or car loan because you lack a traditional credit history built on debt.This fundamental flaw in the financial system is precisely what FICO, the creator of the ubiquitous credit score, and Plaid, the fintech powerhouse that connects bank accounts to apps, are aiming to fix through a groundbreaking new partnership. By launching a next-generation credit score that leverages real-time cash flow data, they are fundamentally challenging the decades-old model of creditworthiness.Imagine a world where your consistent savings habits and the positive cash flow in your checking account matter as much as your history of credit card payments. This is the promise of the new UltraFICO score, which integrates Plaid’s vast network—spanning 12,000 financial institutions and providing a window into how money moves between bank accounts, payment apps like Venmo, and investment platforms—to create a more holistic financial portrait.The traditional FICO score, while a gold standard, has long been criticized for creating a catch-22: you need credit to build credit. It forces financially prudent individuals to play a game of debt, often opening credit cards they don't need and making unnecessary purchases just to generate a payment history that the system recognizes.This new model, which consumers must opt into, flips the script. It’s a move akin to the principles in 'Rich Dad Poor Dad,' where understanding your cash flow is the cornerstone of wealth-building, not just managing liability.For lenders, this isn't just a feel-good initiative; it's a smart business strategy. By tapping into this untapped market of creditworthy individuals, banks and fintech lenders can significantly expand their customer base, driving growth in a saturated market.Julie May, FICO’s VP, calls this the foundation for 'more comprehensive lending decisions,' a shift towards responsible and inclusive lending that could democratize access to capital. This isn't FICO's first foray into alternative data—the UltraFICO concept was introduced back in 2018—but the partnership with Plaid provides the scalable, real-time data infrastructure it desperately needed to become mainstream.Plaid itself is also pushing into this space with its own beta product, LendScore, signaling a massive industry-wide pivot. As Adam Yoxtheimer of Plaid notes, high-quality cash flow data is becoming essential, not optional.The potential consequences are vast, from helping young adults and immigrants establish financial footing to allowing gig economy workers with fluctuating incomes to prove their stability. However, it also raises important questions about data privacy and the new digital divides it might create. Ultimately, this collaboration is more than a new product; it's a fundamental rethinking of what it means to be financially healthy, moving the focus from how you handle debt to how you manage your entire financial life.

#FICO

#Plaid

#UltraFICO

#credit score

#cash flow data

#lending

#fintech

#featured

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