Is it possible to get a credit score even when you don't have credit?
FICO Score XD, a new alternative credit score, is now being used to evaluate borrowers who have no credit history or too little credit history to generate a traditional FICO score. The XD is derived from how customers pay some utility, cable and cell phone bills.
FICO, the creator of the scores, is offering the XD to bank credit card issuers as a way to give previously unscorable consumers a shot at getting a credit card, though the company聽does not disclose which issuers are using the score.
As with more , paying bills on time is crucial for consumers. Information used for the XD score comes from phone carriers, utilities, credit bureaus, public records and property data. The XD shares the same 300-to-850 scale as the traditional FICO score and its less widely used competitor, the VantageScore.
The FICO XD includes data on payments for such bills聽as:
- Landline phone.
- Pay TV or cable.
- Cell phone.
- Utilities.
While the data may be predictive of how a consumer will repay borrowed money, they are not considered in traditional credit scores, nor do they appear on credit reports unless those consumer accounts have been sent to collections.
The temporary FICO XD is designed to give a financial footprint to聽the 鈥渃redit invisibles,鈥� or people聽who lack recent credit history, and help lenders figure out which previously unscorable consumers are creditworthy. Once people are approved for a credit card, they are on the way to being scorable under聽the traditional FICO.
That seems to be what happened in pilot testing, when a dozen major banks participated. Within six months of opening a credit account, the new cardholders were able to get聽traditional FICO scores, the company said. And they are proving to be good customers: Nearly half of those who had FICO XD scores of at least 620 went on to achieve (700 or higher) two years after getting a credit card.
Plenty of data available
About 50 million people don鈥檛 have traditional FICO scores, which require at least one undisputed credit account that has been open and reporting to credit bureaus for at least six months.
use alternative data 鈥� when they are included on credit reports 鈥� and can score more consumers, with scores generated in as little as three months.
Potential lenders would like to be able to figure out which of the millions of people who don鈥檛 have credit scores would be creditworthy聽customers.
Much of the emerging financial technology industry revolves around identifying alternate measures of credit risks. Several personal loan providers, for example, look at factors such as income potential for new graduates or the purpose for the loan. All of them, though, depend in some measure on an underlying credit score.
FICO鈥檚 partnership with Equifax and LexisNexis Risk Solutions gives it access to property data and to the National Consumer Telecom & Utility Exchange, a group聽managed by Equifax that collects information聽from phone, utility and cable records. Those accounts don鈥檛 appear as credit-related entries聽on the credit reports used to calculate your score, but聽they can be indicators of creditworthiness. The extent of data available may surprise you: whether you own a home, the home鈥檚 value, bank records, occupational licenses and how often you move.
You may have a thin credit file, but there鈥檚 likely no shortage of information about you.
Access聽for the 鈥榗redit invisible鈥�
Why would someone not have a credit score?
You can be unscorable if you鈥檝e never had a credit card or loan, so there is insufficient data for a score. Also, if you鈥檝e had credit but haven鈥檛 used it in years, you could become 鈥�.鈥�
Either way, in the eyes of the credit-scoring gods, you鈥檙e unlikely to be approved for an unsecured line of credit such as a credit card because you don鈥檛 have a track record of borrowing and repayment. Not only are you聽rejected for loans and credit cards聽if you are unscored, but you may also pay more for car insurance and find it more difficult to rent an apartment.
If you鈥檙e credit invisible 鈥� and until the FICO Score XD is widely adopted by lenders 鈥� it鈥檚 important to know how to find other on-ramps to credit, including:
- 础听.聽Be sure to keep balances to less than 30% of your credit limit, which is typically equal to your deposit.
- 础听鈥�,鈥� which, as the name suggests, is a loan for the purpose of improving credit. These are often found at credit unions or community banks.
- 础听 (small and time-limited credit that limit the risk to the co-signer).
- that relay rent payment information to credit bureaus, creating an entry for a bill you鈥檙e already paying.
These credit products are often available even to people without a credit history. And paid on time, they can give users the history and credit scores required to get聽unsecured loans and credit cards.
Bev O鈥橲hea is a staff writer at NerdWallet, a personal finance website. Twitter: . This article first appeared at .
