Here’s Why “Thin Credit” Consumers Might Now Have A FICO Score

Kimberly Rotter

Kimberly Rotter | Blog

Jul 01, 2015 | Updated Apr 27, 2016

The term “thin” credit report refers to a consumer credit history that has insufficient data to assign a score. It doesn’t take much to get a FICO score:

  1. At least one credit account must be reported to a credit reporting agency
  2. At least one account (it can be the same one) must have been open for six months or longer
  3. The consumer must not be deceased

People who avoid credit, by choice or because a past negative credit event blocked their access to traditional credit products, can be virtually invisible in the world of creditors.

Without a credit score, we have no access to credit other than those products that are typically considered predatory (payday loans, for example). It’s estimated that about 53 million people in the U.S. don’t have a FICO score, either by choice or from negative events.

Until this year, those who paid their bills responsibly (but didn’t use credit) were not recognized for their financial management skills. In other words, paying the rent and electric bill on time every month didn’t do anything to help build a healthy credit file. That is changing.

Learn the steps to take to build your credit score here »

An Alternative FICO Score For Unscored Consumers

FICO introduced a pilot program earlier in 2015 to include alternative credit data in score calculations. The program will pull data from the credit reporting agency Equifax as well as LexisNexis.

The new score considers:

  • utility bills
  • cell phone and landline phone bills
  • cable TV bills
  • rent
  • address history
  • and other factors

A very large number of consumers are expected to benefit from the new scoring model.

15 million previously unscorable consumers qualify for a credit score under the new model, and as many as 5 million of them shot straight into the “fair” category or better (a score of 620 or higher).

That means that some people who previously could not obtain financing may now qualify. If such a person is able to get a credit card using this alternative score, keeping it active for 6 months will generate a traditional FICO score for them, leading to more opportunities and better terms. Overall, this is great news for consumers, and especially for those who manage their money well.

The new scoring model does not yet have a name and is only being rolled out to select creditors. At least twelve large (but so far unnamed) credit card issuers have access to the score, but there are plans to roll out the new score to more lenders later this year.

Working with Equifax and LexisNexis, we set out to help unbanked, under-banked and disadvantaged people gain equal access to the standard credit products enjoyed by millions of Americans … We’re excited by our pilot program’s strong results thus far. Jim Wehmann, FICO’s executive vice president for Scores

Pay Your Bills To Keep Your Credit High

Reading between the lines we can infer that it’s now more important than ever to pay your bills on time, no matter what the bills are for. We don’t yet know how the alternative data will appear on a consumer’s credit report, but it is likely that consumers with a traditional credit score will not see any changes because the alternative score is completely separate. However, it is unclear whether or not unpaid bills will negatively affect someone with a good traditional credit score.

This pilot program may be a sign that alternative data is here to stay, and that going forward credit reporting agencies will scrutinize not only our use of traditional credit products but our bill paying habits in general. At any rate, unpaid bills that go to collections will always hurt your credit score under the traditional scoring models. The principles of responsible credit use will serve you well in other financial situations as well.

Learn how to better manage your debt here »

Do you expect to get an alternative credit score? Are you looking forward to utilities and other bills being counted towards your credit? Let us know in the comments below!

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