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A new credit assessment program could help millions of Americans instantly improve their credit scores, simply by adding data from their checking account.
Consumers who choose to use Experian Boost (an online platform set to launch early this year) give the company permission to access their online banking accounts to look at utility, cable TV and phone payments for the past 24 months. The entire process should take about five minutes and the updated FICO score is delivered to the potential lender instantly.
“It’s the first time that consumers have been able to do this,” said Jeff Softley, chief marketing officer for Experian Consumer Services. “This record of recurring payments will build out a consumer's positive payment history and length of credit, so the majority of people who use the product will see an instant improvement in their credit score.”
Only positive payment histories are collected with this program and the consumer can remove the new data at any time.
For people with limited credit history, such as young adults, Experian Boost will provide a second chance to prove themselves trustworthy borrowers.
“This gives lenders a fair look at someone’s payment history, so they know that they're lending to a person who can repay responsibly,” said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling and a member of the Experian Consumer Council. “At the same time, it's giving people with thin credit files the ability to have access to credit, which will help them establish a traditional credit history.”
When the program was first announced, Experian estimated that about 100 million American consumers don’t have access to mainstream credit because their credit scores are too low or they don’t have enough credit history. As a result, they are denied access to loans or pay exorbitant rates to borrow.
The average consumer with a subprime credit score will pay approximately $200,000 more for credit over the course of their lifetime, according to an analysis by the non-profit Credit Builders Alliance.
Good credit is also important for getting utility service and renting an apartment. Many employers look at credit reports (not scores) before hiring. A low credit score can also drive up insurance rates for drivers and homeowners in some states.
Consumers with limited credit history and low credit scores (between 580 and 669) will benefit the most from Experian Boost, Softley said. A consumer with bad or poor credit behavior won’t improve to a good status.
Experian Boost works within the existing credit reporting system, so it will impact the most commonly used credit scoring models used by lenders, including FICO 8, FICO 9, VantageScore 3 and VantageScore 4 — assuming the score is being generated from Experian data. Credit experts and consumer advocates contacted by NBC News all noted that Experian Boost is an opt-in program that puts the consumer in control. All other data collected by credit bureaus is done without the consumer’s permission.
“I don't really see a downside,” said Ted Rossman, industry analyst for CreditCards.com. “Opting in to a potentially beneficial program like this could be helpful.”
Since banks want to expand the potential pool of borrowers without increasing their risk, for the past few years the major credit reporting agencies have been working to provide lenders with the tools to do that.
“The goal is to bring in as many data points as possible to help the lenders make smart decisions,” said Matt Schulz, chief industry analyst at CompareCards.com.
Last year, the big three credit bureaus — Experian, Equifax and TransUnion — helped raise scores by downplaying negative information such as tax liens and collection accounts.
Fair Isaac Corp., the company that created the FICO credit score, has unveiled a new scoring system, UltraFICO (in partnership with Experian) that includes consumers’ checking and saving account information. FICO says seven out of 10 consumers who opt into the program and have an average savings of $400 – with no negative balances in the past three months – will see an increase in their score with UltraFICO.
For these new scoring models to succeed, lenders will need to use them, something they are expected to do.
Nessa Feddis, a senior vice president with the American Bankers Association, called the Experian Boost and UltraFICO “potentially great tools” that will “expand credit to people who might not qualify under traditional underwriting standards.”
Banks will be “very interested” in using them, she said, if regulators approve.