Beware of New “tricks” to Improve Your Credit Rating
Over the past few months, lending companies have made several announcements of new “tricks” that consumers can soon use to improve their credit scores. The changes sound good in theory, but as with all financial products, you can bet that companies are not adopting them wholeheartedly.
FICO, an information company that produces the widely used FICO credit rating, announced in October 2018 a new rating UltraFICO , which promises to help consumers with bad credit history . This is how it will work, as I wrote then :
If a consumer has a short credit history or multiple bad scores on a report, they will be able to ask lenders to record their UltraFICO score , which will be determined by their bank account rather than credit history. UltraFICO will take into account the person’s current balance (consumers must maintain a balance of $ 400 on average), the length of the check history, the frequency of transactions, and the history of overspending. If you already have a good credit rating / history, the new scoring model won’t help you.
And Experian, one of the three major credit bureaus in the US, announced in December the so-called Experian Boost, which, like UltraFICO, will give you “extra credit to pay the utility bills and mobile phone bills you already pay.”
FICO claims four million people can benefit from the new system, while Experian boasts that Boost will also help those with bad credit or not.
But there are problems with both. First, these systems operate on the assumption that all credit is good credit and that consumers must line up to access more credit. But the fact that the lender is willing to provide it to you does not mean that it is in your best interest. American consumers already have $ 1 trillion in credit card debt . This does not mean that everyone will accumulate debt – and the credit rating system is inherently unfair – but it is something to keep in mind.
Then there are the logistical problems. As I wrote about UltraFICO, “IT and lending institutions can make a lot of money by expanding the pool of customers using loans and paying high interest rates on balances.” It is also unlikely that this change will be introduced or widely used any time soon. And as with all products, consumers need to be careful when sharing their financial information, especially their bank statements.
As Experian notes on its website , Boost is based on the FICO Score 8 model, which is not used by all lenders. It’s the same with Experian’s credit reports and the ratings themselves. “Results may vary,” the website says. “Some may not see improved results or likelihood of approval. Not all lenders use Experian Credit Files or Experian Boost Affected Ratings. ” This is not a silver bullet to fix your credit history.
As always, if companies have a way to make more money, they will. Tricks to boost your credit rating may sound positive, but be careful – and don’t expect them to work overnight.