Experian to allow utility, telecom payments to factor into credit score

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Experian has announced a new feature called Experian Boost that the company says may help lift some consumers’ credit score. But there’s a catch.

Experian is one of the three major consumer credit bureaus, along with TransUnion and Equifax, that gathers consumer data in compiling credit reports, which are used to calculate your credit scores. As lenders have looked to expand their pool of potential borrowers, there’s been growing pressure on credit bureaus to likewise expand what information they include in credit reports.

To that end, the new Experian Boost product, scheduled to launch early next year, will take into account consumers’ payments to utilities and telecom accounts to help evaluate creditworthiness — if you opt in and agree to give the credit bureau access to your bank account to track these bill payments.

That information will then be included when calculating your FICO® score, using the FICO® Score 8 model. But remember, a lender or issuer can check a separate FICO® score or a different score altogether when checking your credit.

The idea behind Experian Boost is to give a wider range of consumers a chance to establish or improve their credit, increasing the pool of potential borrowers in the market.

But there are also privacy concerns about people allowing a credit bureau to get more intimate with their sensitive financial info.

In addition, a report from The Wall Street Journal notes that any jump in your credit score from Experian Boost could be easy-come, easy-go. Experian says it will remove your utility or telecom record — and the boost in your credit score could disappear — if you don’t pay your bill for three consecutive months.

Want to know more?

  • What’s the background?
  • Why does this matter?
  • How could this affect you?
  • What’s next?

What’s the background?

Traditionally, credit scores have been calculated using information in the consumer’s credit report, which can include loans and lines of credit — including credit cards, student loans and auto loans. However, there have been growing efforts to change the way these scores are calculated in order to open access to credit for those with a limited credit history or poor credit scores under traditional models.

The Credit Access and Inclusion Act of 2017, which is under review in the U.S. Senate, would allow telecom companies, utility companies and landlords the option to report consumer credit history to the three major consumer credit bureaus.

Similarly, an effort included in the National Consumer Assistance Plan helped increase credit scores for many by removing certain collections accounts and tax liens.

Experian may be hoping to capitalize on the current momentum to provide information in its credit report that may positively affect a consumer’s credit score.

Why does this matter?

By giving consumers new ways to demonstrate positive payment history, Experian projects that Experian Boost could help many consumers. An Experian test found the product could …

  • Establish a credit score for 10% of consumers who don’t have a score because of a thin credit file
  • Increase the credit score of 75% of people with a FICO® score currently under 680
  • Move 5% to 15% of consumers into a higher credit score range (from “poor” to “fair” or from “fair” to “good”)

This evolution is raising concerns that adding data that can increase consumers’ credit scores could cause problems down the road if subprime borrowers get access to more credit. But Jeff Softley, chief revenue officer for Experian Consumer Services, told The Wall Street Journal that the bureau has tested the Experian Boost model and found it accurately predicts risks. And he said the tool “is about access to credit — not expansion of credit.”

How could this affect you?

For many consumers, Experian Boost has potential to help their credit. If you’re wondering whether to try it, there are some factors to consider, though:

  • Not all lenders use the same credit scores: Perhaps the biggest thing to keep in mind is that lenders today can choose from a variety of credit scores to help determine your creditworthiness. Experian Boost uses the FICO® Score 8 model — and might increase that particular FICO® score — but your other credit scores could be lower by comparison.
  • Falling behind on bill payments can affect your score: Experian Boost only improves your score if you make on-time payments to your utility and telecom bills. Experian will remove from your credit report any accounts that you neglect to pay for three consecutive months — and this in turn would reverse any positive credit score gain you saw from the addition of the account.
  • Signing up requires you to give Experian access to your bank account info: To use Experian Boost, you have to sign up for an Experian account — and you have to agree to let Experian connect to your online bank account to track bill payments. Recent public data breaches — including one involving Equifax in 2017 that affected nearly 148 million U.S. consumers — have highlighted the potential risk involved when companies have extensive access to personal data.

What’s next?

Experian Boost won’t be live until early 2019, and no specific launch date has been set. In the meantime, if you’re looking at ways to boost your credit you might want to consider actions like reducing your credit utilization rate and making consistent on-time payments on any credit cards or outstanding loans you have.