FICO Will Use a New Credit Rating That Includes Your Bill Payments
FICO adds a new model for calculating credit ratings. Last week they announced a pilot program that will begin in the next few months. It is designed to help people with bad or nonexistent credit history, including bill payment history.
They have been working on this for two years now, and the new scoring model will have a big impact on creditworthiness. According to the Wall Street Journal, about 53 million Americans have no credit history either because they don’t use debt or because they started over after foreclosure or bankruptcy. The new program includes a history of utility bills – everything from mobile phone bills to cable TV bills.
The new rating will be in the 300-850 range. But it is not intended to replace the traditional FICO score. This is an alternative score that you can use to get a loan easier. Ideally, the credit card issuer looks at this alternate rating and then approves a line of credit for you, which allows you to create a payment history. The Wall Street Journal explains:
With the new rating, consumers who receive a credit card and process their payments well – avoiding payment delays and keeping balances low – for at least six months will then receive regular FICO ratings, making it easier for them to get approved for other loans, including car loans and mortgages.
The idea is that people who pay their bills on time are likely to pay their debts on time as well, so they should be given the opportunity to prove their creditworthiness. But not everyone agrees that this is a useful move. Consumer reports:
While giving people more credit options is a good thing, basing consumers’ ability to pay on utility bills can negatively impact consumers struggling to make ends meet month after month. Chi Chi Wu, a staff attorney for the NCLC [National Consumer Law Center], expressed concern among advocates that the use of additional information “would add millions of negative news reports to the credit reporting system and would actually displease more consumers, especially those with financial disabilities. credit black marks “.
There are concerns that the program will in fact lead to more bad ratings than positive ones. But based on their work with the program already, FICO predicts that two-thirds of people who receive new grades will have a score above 620.
To find out more about the change, follow the links below.
FICO Announces New Alternative Credit Rating | Wall Street Journal via Consumerist