It's a Catch-22: If you have little or no credit history, you may find it difficult or expensive to get a loan or credit card that can help you establish or improve your credit score.
However, if you consistently keep up with your utility and mobile phone bills, a new credit score-building program called Experian Boost can add that information, known as alternative credit data, to your credit report. It could result in a higher credit score, making you seem like less of a risk to creditors.
For it to work, though, the creditor you're applying with must rely on Experian data to evaluate your application.
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What Is Experian Boost?
Experian Boost gives you a chance to add positive alternative data to your credit report when you pay your utility and mobile phone bills.
Through the free service, you can decide whether to allow the credit reporting agency to access bank records that show you're making these payments.
"As long as the information is predictive of credit risk, then it's beneficial to everyone involved -- lenders and consumers," says John Ulzheimer, a credit expert who previously worked at Equifax and FICO. "This is the first time ever that a consumer has had this much control over whether or not something ends up on their Experian credit report."
Experian Boost tracks monthly payments to utility companies, for example, in the same way it tracks whether consumers pay traditional credit accounts on time, says Rod Griffin, director of public education at Experian.
There is one important difference: Credit reporting bureaus put positive and negative information about loan and credit card payments in credit reports, while Experian Boost only reports the positive. So, if you miss a credit card payment, it will be reported. But if you miss a phone or utility payment on an account you want tracked, that negative information won't reach the report.
"If accounts become negative, after several months we'll stop reporting that information," Griffin says.
What Is Alternative Credit Data?
Alternative credit data is information that isn't traditionally included in your credit report but that can make a difference for your credit rating. It could include how well you keep up with your utility bills or how responsible you are with your bank accounts.
Your credit scores, whether from FICO or VantageScore, are largely the product of reports produced by the three major credit reporting agencies: TransUnion, Experian and Equifax. Credit reports from these companies have traditionally relied on data like payment history for loans and credit cards, credit limits, and credit inquiries.
But many lenders also consider alternative credit data to determine whether you're approved for a loan or credit card, even if you're not aware of it. Overall, 65% of lenders are making decisions with information that goes beyond a traditional credit report, according to a 2019 study from Experian.
How to Sign Up For Experian Boost
To start with Experian Boost, visit the website and provide information about the bank accounts you use for paying bills. Then, choose the payment history you want included in your credit file.
Experian works with its financial data partner Finicity to tie into your checking or savings account. The reporting goes back 24 months, Griffin says, with a required minimum of three months of payments.
"You give us permission to add that information by accessing your bank account once a month, finding that payment and pulling it into the credit report," Griffin says.
Within minutes of signing up for Experian Boost, you can compare your new score with the previous one you had on the FICO Score 8 version.
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Who Can Benefit From Experian Boost?
Consumers who have a limited credit history stand to benefit the most from Experian Boost.
"The marginal borrower -- the consumer with a 'this close' credit score who really only needs a few points" is helped the most, Ulzheimer says. "This doesn't help someone who has an 800-plus score because that person doesn't need any help."
About 26 million people were considered "credit invisible" according to a 2015 report from the Consumer Financial Protection Bureau, which means they did not have a credit history with any of the three national credit reporting agencies.
But improving your Experian score doesn't help if your credit card issuer or lender doesn't use data from Experian for credit decisions. Companies aren't typically forthcoming about which credit scores they use. Both Griffin and Ulzheimer suggest you call and ask before submitting an application.
"It's not national security, although some of the front-line customer service people may not know the answer," says Ulzheimer.
How Experian Boost Information Is Reflected in Credit Scores
FICO and VantageScore's numbers are determined by what's in your credit report. So if your creditor is using Experian data for some of the most common FICO scores in use today -- particularly FICO Score 8 and FICO Score 9 -- or for any VantageScore model, Experian Boost could affect your score.
David Shellenberger, vice president of scores and analytics at FICO, says FICO hasn't seen a huge effect from Experian Boost yet, but that it could "potentially grow over time."
Ulzheimer notes the impact can vary. "I've seen as little as no boost to almost 40 points," he says. "Mine personally went up five points. There is certainly a chance someone can move from a poor credit risk to a slightly better credit risk. But people should be reasonable with their expectations. This isn't going to turn a VantageScore 580 into a VantageScore 760."
Does Experian Boost Influence Lenders?
The success of a credit score improved by Experian Boost ultimately depends on whether the lender uses a credit score model influenced by Experian Boost.
As noted on the Experian Boost website, "Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost."
The impact of Experian Boost "will depend on the information that resides in a consumer's credit file, so how much the score improves will vary from consumer to consumer," Richardson says. "The advice to consumers is that if you've applied for a loan and been turned down or didn't get the best terms, this might get you over the threshold."
However, it's a different story if you're applying for a home loan, as mortgage lenders use an older version of the FICO score that might not incorporate alternative consumer data from Experian Boost at this point, Griffin says.
Potential Drawbacks of Experian Boost
Some consumers might be concerned about sharing checking account information with a third party.
"It will take a leap of faith when you provide your login credentials to allow for Finicity to access your bank account records to capture the payments of your utility accounts," Ulzheimer says.
Officials emphasize, however, Experian Boost has multiple safety protocols in place. It's based on consumer permission, which can be withdrawn at any time, Griffin says. Also, all data use is encrypted throughout the exchange, and Experian never sees the consumer's account.
And, as noted, Experian Boost will only affect Experian data. "It will do nothing to help you at Equifax or TransUnion," Ulzheimer says.
Another concern: Experian Boost measures paying bills on time but not managing credit. Even if you're paying utility bills by the due date, that doesn't necessarily mean you'll do well staying on top of credit cards.
Other Ways to Improve Your Credit
Any time you get access to credit, you have an opportunity to improve your credit score. You can do so by paying your bills on time and not using more than 30% of your credit limit on credit cards. But for those who are having trouble qualifying for a line of credit, there are options.
A secured credit card is easier to obtain than unsecured credit cards. The card is secured with a cash deposit, which protects the lender if you default on a payment. Some banks will make it possible to graduate to an unsecured card account if all goes well with the secured one.
A credit-builder loan allows people with a limited credit history to get a loan that is, for the most part, designed to prove creditworthiness. Credit unions and community banks often offer these secured loans, which give borrowers an opportunity to make regular payments and build a credit history.
Finally, there's another product that taps into alternative credit data to help consumers earn a higher credit score: UltraFICO, which is in the pilot stage, uses bank account information like Experian Boost but in a different way. It examines how long your bank accounts have been open, analyzes your bank transactions, and looks for positive account balances and cash on hand to determine how well you're managing finances.
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