If you have money in your savings account, don’t miss payments on your bills, and use a debit card to buy your groceries, you may not be able to get a credit score.
It has always bothered me that being responsible wasn’t enough to get a credit score historically, but finally it’s starting to help.
There are 53 million people in the U.S. who are “unscorable” due to little or no credit history. Perhaps you fall into that boat now or did in the past. Some example profiles of the millions without credit scores include college students, new grads, recent immigrants, people who hate credit cards, those with no form of credit at all, and people who have suffered a foreclosure or bankruptcy.
OVERCOMING THE PARADOX
I remember the time in my life when I got out of college and was faced with the catch 22 of needing credit in order to get credit. It’s rather illogical to expect people to have a credit score in order to get a loan or line of credit when they aren’t able to build a sufficient credit history on their own without having a credit score first.
I was totally perplexed by this chicken or the egg paradox when I was applying for credit cards, trying to refinance my student loan debt, and applying for apartment rentals. It was frustrating.
Fortunately my mom was able to co-sign on what I needed and my credit history slowly began. Not everyone has family members who are willing or able to help get their credit profile started, however, so I’m happy that times are changing and things are becoming easier for more people get credit scores and credit itself.
NEW FICO PROGRAM FOR THE UNSCORABLE
If you’re still having a difficult time getting loans because you don’t have a credit score due to weak credit or a lack thereof, there is hope! Even if you don’t have any current plans to apply for credit, it’s important to be aware of how times are changing if you have little or no credit profile.
FICO, the most commonly used software provider for credit scores, is used in about 90% of all consumer-lending decisions. The good news for those with little to no credit history is that FICO is currently running a pilot program with 12 of the largest U.S. credit card issuers specifically targeted towards helping the “unscorable” get a credit score. They estimate this new scoring system will help 15 million people obtain credit scores who couldn’t otherwise.
SIMPLE AND PRACTICAL SOLUTIONS
How will the new FICO calculation work for the “unscorable?” FICO has partnered with LexisNexis Risk Solutions and Equifax to gather alternative data points and calculate a score using inputs like payment history of utility bills and public address records. With traditional scoring, consumers didn’t receive a positive impact for paying their bills on time. But missing bill payments could negatively impact credit scores and still does today.
Under FICO’s new pilot program, simply paying your electricity and cellphone bills on time can finally help you get a credit score. How will FICO be able to tell if you’re staying on top of your utility bills? FICO’s partnership with Equifax gives them access to the National Consumer Telecom & Utilities Exchange database (NCTUE).
WHAT YOU NEED TO KNOW ABOUT NCTUE
There are over 70 companies contributing data to Equifax’s NCTUE. The database includes wireless and landline phone providers, cable companies, pay TV companies, and general utility providers like PG&E for water, electricity, and gas.
If you want to see what information they have on file for you, call 1-866-349-5185 to request a copy of your NCTUE Disclosure Report. You can place a fraud alert on your profile if you suspect fraudulent activity and place a security freeze on your profile as well. Contact NCTUE if your report looks off and they will investigate missing or inaccurate directly with the data providers free of charge.
Feeling a bit paranoid or annoyed that privacy continues to become harder to come by? The good news is you have the choice to opt-out with NCTUE f you don’t want your account information passed on. You can reach their opt-out service line at 1-888-327-4376.
The risk of FICO utilizing NCTUE data to calculate credit scores for those without a credit history is that the database could be fed with inaccurate information of course. I’m sure most of you agree with me that cable and telecom providers aren’t the most reliable with account data.
For example, I had a nightmare of a time with AT&T many years ago because either the representatives I spoke with gave me bad information when I was canceling my account or someone on their side dropped the ball. Basically, I was told to ignore my final pro-rated invoice because they were going to credit my account to a zero balance.
But surprise, surprise that credit never came and my account fell into delinquent status unbeknownst to me. I eventually found out when a collection agency came after me. I was furious to say the least.
AT&T couldn’t help me track down the missing credit or clear my name because my account was closed and completely inaccessible. Yeah right. I ended up having to pay the collection agency to put that to bed. I was not happy about that.
Anyway, this just goes to show that the data being fed to NCTUE is probably going to have some errors in it that might hurt consumers if it isn’t caught and corrected.
OPEN ACCOUNTS IN YOUR NAME
Keep in mind, for NCTUE’s data to work in your favor for getting a FICO credit score, you’ll need to have accounts in your name. So if you’re living with mom and dad or a roommate, try to get at least one utility bill under your name.
Also keep in mind that if you live in a little town or use small providers, they may not even provide account data to NCTUE in the first place. But I imagine more providers will start to contribute information over time, especially if the FICO pilot program is successful.
ITCHING TO MOVE? YOU MIGHT WANT TO RECONSIDER
Besides utility billing information, FICO is using public address records in their new credit score calculations for those without a credit history. FICO partnered with LexisNexis to access public property records. This will allow credit agencies to analyze how often you’ve changed your address.
Moving frequently from one place to another could hurt your chances of getting a score or possibly even lower your score. Hopping around from one place to the next can be deemed as unstable. Landlords typically have that same viewpoint and it’s pretty common to have to list out how long you’ve lived at your current residence when applying for a lease.
But is treating frequent moves as a sign of risk fair to young adults? I moved to a new apartment about every year in my early 20s as I changed roommates and grew to afford better digs. It’s hard to say what FICO will consider too frequent. They have always kept the details of their various credit score calculations private, so we may never know.
Keep in mind that rental payments aren’t being taken into consideration by FICO. This seems like a critically missing piece of information, but I’d wager a guess rental payment history is excluded because it’s simply too complicated to track. There are well over twenty million landlords in the US after all and no automated way that I know of to compile rental payment data.
WHAT TO EXPECT
FICO’s pilot program to help more “unscorable” people obtain credit scores is anticipated to continue for several more months and should be available to lenders later this year. It’s unclear what this new scoring system will be called, but it will be a standalone score that’s separate from their many other existing models.
Fortunately, it will be on the standard scale range of 300 to 850, which should avoid unnecessary confusion. Also keep in mind that even once the pilot program goes live, you may still have to wait to get a loan or line of credit. Certain lenders may choose not use the new scoring model or it may take them several months to start using. We all know change can take time.
All in all, I think it’s a smart step in the right direction. Needing credit to get credit just doesn’t make much sense. And responsible people should be able to get a credit score even without an established credit profile.
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Furthermore, 1 out of 4 credit reports have errors, negatively affecting one’s credit score. I had a $7 late electric bill that crushed my credit score by 100 points and almost derailed my mortgage refinance. The scary thing is, I had no idea for years.
Updated for 2020 and beyond.