New scor­ing sys­tem to help peo­ple with poor credit


Peo­ple strug­gling with a bad credit score, or lack of one, could ben­e­fit from a pro­gram rolling out in the next few months aimed at mak­ing it eas­ier to get a Visa or MasterCard.

The com­pany be­hind the widely- used FICO credit score an­nounced Thurs­day a pi­lot pro­gram to help mil­lions of Amer­i­cans get eas­ier ac­cess to credit, based on their record of pay­ing util­ity bills, in­stead of their his­tory of loan re­pay­ments.

The po­ten­tial reach


the pro­gram is huge. An es­ti­mated 53 mil­lion Amer­i­cans, or a quar­ter of the U. S. adult pop­u­la­tion, don’t have FICO scores cre­ated by the com­pany Fair Isaac. Roughly 90 per­cent of all lend­ing de­ci­sions — credit card ap­pli­ca­tions and auto loans, among oth­ers — are based on that score. Banks would nor­mally deny credit to any­one with­out one, or they could charge them sig­nif­i­cantly higher in­ter­est rates, be­cause the ap­pli­cants would be con­sid­ered risky. Scores range from 300 — poor — to 850 — per­fect — and are determined by a bor­rower’s credit pay­ment his­tory, out­stand­ing bal­ances and length of credit his­tory.

Th­ese con­sumers are of­ten the young, with­out an es­tab­lished credit his­tory, or im­mi­grants, who are new to the U.S. A dis­pro­por­tion­ate num­ber of th­ese “un­score­able” peo­ple are mi­nori­ties as well, par­tic­u­larly black and His­panic con­sumers, says Ankush Te­wari, se­nior direc­tor of mar­ket plan­ning at Lex­isNexis Risk So­lu­tions. Lex­isNexis is one three com­pa­nies in­volved in the pro­gram.

The pro­gram took two years to de­velop and came from Fair Isaac. Re­search showed peo­ple who have a his­tory of pay­ing util­ity bills on time would also pay credit card bills on time.

Un­der the pro­gram, Fair Isaac, work­ing with Lex­isNexis and credit agency Equifax, will cre­ate a pay­ment his­tory pro­file from a per­son’s util­ity bills and public prop­erty records. FICO would use that pooled data de­ter­mine an “al­ter­na­tive” credit score when a per­son with a poor credit his­tory, or none at all, ap­plies for a credit card.




be­ing made avail­able to the 12 largest credit card is­suers, but Fair Isaac did not say which banks will be par­tic­i­pat­ing in the pro­gram. A spokesman from JPMor­gan Chase, the na­tion’s largest credit card is­suer by num­ber of cards, de­clined to com­ment. Rep­re­sen­ta­tives from Amer­i­can Ex­press and Cit­i­group did not re­spond to re­quests for com­ment.

The pro­gram, which does not have a name yet, is not de­signed to re­place the tra­di­tional FICO score and will only be avail­able to credit card is­suers ini­tially. Once a per­son ob­tains a card us­ing this al­ter­na­tive score, they would be able to es­tab­lish a credit pay­ment his­tory. They could then ap­ply for auto or home loans.

“Most peo­ple have a cell­phone, gas or elec­tric bill, and the size of those pay­ments each month can be size­able,” says Ja­son Flem­ish, vice pres­i­dent of con­sumer risk and credit prod­ucts at Equifax. “So let’s give them the op­por­tu­nity to ben­e­fit from pay­ing those bills on time.”

Banks have a fi­nan­cial in­ter­est in the pro­gram. The mil­lions of Amer­i­cans with­out a FICO score are po­ten­tial bor­row­ers who could get credit cards. Be­cause th­ese bor­row­ers would have limited credit his­tory, banks could charge high in­ter­est rates.

The data be­ing gath­ered by Equifax and Lex­isNexis is also cov­ered un­der the Fair Credit Re­port­ing Act, says Te­wari of Lex­isNexis. Peo­ple will be able to dis­pute any neg­a­tive event, like a con­tested util­ity bill pay­ment, in their credit re­port.

“All you have to do is just pay your bills on time. It will give you ac­cess to credit sys­tem,” Flem­ish says.

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