Buzz
In recent months, credit companies have made several announcements regarding new 'methods' consumers can use to enhance their credit scores. While these changes sound promising, as with all financial products, these companies aren't offering them out of pure altruism.
In October 2018, FICO, the company behind the widely used credit score, introduced a new UltraFICO score designed to assist individuals with poor credit. Here's how it is supposed to work, as I wrote at the time:
If someone has a limited credit history or negative marks on their report, they can request that lenders take their
UltraFICO score
into account, which will be based on their bank account activity instead of their credit history. The UltraFICO score will consider factors such as checking balance (with a required average of $400), the length of the checking account, frequency of transactions, and any history of overdrafts. If you already have a strong credit score or history, this new model won’t be beneficial for you.
In December, Experian, one of the three major credit bureaus in the U.S., unveiled Experian Boost, which, much like UltraFICO, allows you to earn 'extra credit' for the utility and mobile phone bills you are already paying.
FICO estimates that four million individuals could see an improvement with the new system, while Experian claims that Boost will assist those with little or no credit history.
However, there are issues with both systems. For instance, these models assume that all credit is beneficial, encouraging consumers to seek more. But just because a lender offers credit doesn’t mean it’s always in your best interest. U.S. consumers already carry $1 trillion in credit card debt. This doesn’t mean everyone will fall into debt—and the credit scoring system is inherently biased—but it’s something to keep in mind.
Additionally, there are logistical concerns. As I wrote about UltraFICO, “both it and credit issuers stand to gain significantly by broadening the pool of customers using credit and accruing high interest on balances.” It's also unlikely that this change will be widely implemented anytime soon. As with any product, consumers should be cautious about sharing their financial details, particularly bank statements.
According to Experian on its website, Boost is built on the FICO Score 8 model, which is not used by every lender. The same goes for Experian’s credit reports and scores. The website states, “Results may vary.” It mentions that “some may not experience improved scores or better approval chances. Not all lenders utilize Experian credit files or scores impacted by Experian Boost.” This is not a guaranteed solution for fixing your credit.
As usual, when there's an opportunity for companies to make more money, they’ll seize it. While credit-boosting tricks might appear beneficial, proceed with caution—and don’t expect quick results.
