FICO Plans Credit Scores for People without Credit History
Millions of Americans living without a credit score may soon have a new way to gain a foothold in the financial world. Credit scoring agency FICO has announced plans to include cellphone bills, cable bills and utility bills, as well as information from public property records, into their scoring system.
FICO will work with Equifax and LexisNexus to obtain this information, which will give people without a score the opportunity to build credit before they apply for a loan.
According to FICO, 53 million adults do not qualify for FICO scores under the current system, but 15 million of those scoreless-people already qualify for scores in the new program. The Wall Street Journal estimated that roughly 1/3 of the new scoreholders would have scores above 620.
The new FICO scoring system would still operate on a 300-850 scale. Most banks and credit card companies require a minimum score of 620 for mortgage loans, auto loans, personal loans and credit card applications. If the proposed changes come into effect, they will give millions of Americans a chance of being approved for these types of loans when they may have otherwise been overlooked.
The transformed scoring model would also eliminate the awkward first steps in building credit, which often requires getting a cosigner for a loan or obtaining a high-interest credit card. The theory that “it takes credit to build credit” would not apply anymore because people would have a way to prove their financial responsibility just by paying their bills on time.