A major credit bureau is taking another step to enable people with poor or deteriorating credit histories to improve their chances of getting loans and credit cards.
Experian, one of the three major credit bureaus, said this week that in January it will launch Experian Boost, a free and optional service that allows consumers to supplement their credit reports with information about their payment history. utility, cable and cell phone bills. The additional information can help improve consumer credit scores, the three-digit numbers that lenders use to decide whether borrowers are likely to repay their loans.
Traditional credit reports include your payment history for credit card bills and loans, but generally do not include data on these types of bills unless the accounts are overdue. The new service aims to reward consumers who pay those bills on time, said Gregory Wright, director of products in Experian’s office of consumer affairs.
The service could potentially benefit millions of consumers who have “thin” credit records – meaning they have few credit card or credit card accounts on their reports – or are considered “subprime” borrowers. , with scores too low to meet the demands of many lenders.
There’s a catch or two: You need to have an online bank account and give Experian an electronic preview. Experian will work with Finicity, a financial technology company, to scan bank statements and identify eligible payments. The system uses read-only access, so it cannot modify a user’s data. “Data security is our # 1 priority,” Wright said.
Consumers must give Experian explicit permission to identify eligible bills and add them to their credit report, and can revoke them at any time. Only a positive payment history is included, he said.
Experian has found that adding additional information about paying bills increases a user’s credit score about two-thirds of the time, Wright said; in about a third of cases this has no impact. (Rarely, the additional information can reduce a score slightly; in which case, a consumer might simply cancel access to the service, he said.)
Boost is the latest credit product for consumers with little credit history or bad scores. Experian is also working with the Fair Isaac Corporation, creator of the widely used FICO credit score, to test a new scoring system early next year. Lenders can offer the new score, called UltraFico, as an option for consumers whose traditional credit rating would not qualify them for a loan.
Experian Boost will be available directly to consumers before they apply for credit. They can register on Experian’s website or, optionally, on its mobile app.
Lenders will be notified when the credit report provided to them is based on additional information about consumers, he said.
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One downside is that borrowers usually don’t know in advance whether a lender or credit card company is using Experian to assess credit scores; Lenders can also check a candidate’s credit using major competitors from Experian, Equifax and TransUnion. If a lender doesn’t use Experian, they can’t get the Consumer Boost Score.
As the product grows, Experian may invite participants to apply for credit cards or loans that use Experian and can see their data Boost, Wright said.
Consumer advocates are cautiously optimistic about the possibility of using information selected by consumers to expand credit availability.
Chi Chi Wu, an attorney with the National Consumer Law Center, said the center opposes mandatory reporting of utility payment data to credit bureaus because it could hurt low-income customers who could miss their payments. in the event of financial difficulties. But, she says, because consumers must opt for Boost, there is less risk of the data backfiring; it is likely that only those who pay their bills on time will use the product.
It remains to be seen whether the new service will spread. Consumers are increasingly concerned about the security of their personal information, especially after Great Equifax data breach Last year.
“With credit bureaus’ past issues with data accuracy and security, we are watching them closely as they experiment with new business models that give them access to more personal information,” said Mike Litt, consumer campaign director for US PIRG, a nonprofit consumer advocacy group.
Here are some questions and answers about credit scores:
Q. Who is most likely to benefit from Experian Boost?
Consumers whose credit reports reflect fewer than five accounts and whose scores are between 580 and 669 will likely benefit the most, Experian said. (Base FICO scores range from 300 to 850, with scores above 670 considered good. the average FICO score is now 704.
Q. Can I use Experian Boost if I pay my bills with traditional paper checks?
Currently no; the system cannot analyze check images for keywords to identify them as eligible payments. “We will continue to explore new and innovative ways to capture additional payment history as we go,” said Mr. Wright.
Q. How can I improve my credit rating without allowing access to my bank account?
The best way to reliably increase your credit score is to avoid borrowing the maximum amount available on your credit cards and always pay your bills on time, credit experts say.