On April 2nd, FICO announced the creation of a new credit score designed for people without enough credit to have a regular FICO score. The new score (yet unnamed) is based on data provided by Equifax and LexisNexis Risk Solutions and includes: pay history on utility bills, cable bills, cell phone bills, and address history. The inclusion of address history is based on the premise that stability of one’s residence indicates lower risk.
Who Does This Benefit?
According to a report issued by the Consumer Financial Protection Bureau (CFPB) on May 5th, one in ten adult Americans, or about 26 million consumers, are “credit invisible”, and another 19 million have such scant credit history that they have no scores.
The Problem with Having No Credit
Together, this means that 17 percent of all adult Americans have no credit scores. The concern of the CFPB is that the lack of a credit score puts consumers at a profound disadvantage. Credit scores are used for everything from employment and rental screening to auto and home loans. Consumers without scores may be forced into more expensive alternatives.
So when consumers do not have a credit report, or have too little information to have a credit score, the impact on their lives can be profound. It can preclude them from accessing credit and taking advantage of certain opportunities. – Richard Cordray, CFPB
An Opportunity to Enter the Mainstream
According to FICO, this new score will be available to 12 of the largest credit card issuers, who will offer credit cards to those that meet the requirements of this new scheme. And once these consumers have 6 months of history on a new credit card, they will receive regular FICO scores, which over time can open doors to mainstream opportunities such as auto loans and mortgages.
This program is currently up and running. FICO expects to expand access to additional credit card lenders by year end.