New Hope for Establishing Credit Histories
Fair Isaac, which compiles the FICO® score that serves as the basis of most credit report scores, estimates that 50 million credit-eligible consumers across the nation are being denied credit due to a lack of a strong credit history because they are likely to be recent immigrants, young adults, older consumers who prefer cash, or recently divorced or widowed.
Credit reports currently are based on factors such as a consumer’s bill-paying history, outstanding debt, the number and type of accounts held and how long they have been established. That may begin to change.
Experian, one of the big three credit reporting bureaus, announced in January that it would begin to include rent payments as part of its credit history. At first, it will test the change with a few million consumers who live in buildings managed by approximately 45 rental management companies.
Fair Isaac isn’t adding rental payment history to its FICO score yet but it has created an alternative credit scoring product that includes payment history of utility and phone bills. The widespread adoption of the alternative credit score will depend upon how many credit lenders choose to use that scoring system.
Alternative credit scoring may never become the industry standard yet it is a likely trend as credit lenders seek to expand into new markets. Until then there are three things consumers should do to maintain their credit histories under the current system:
- Be informed and know what is in your credit history and your credit score. The Fair Credit Reporting Act (FCRA) gives you the right to obtain free credit reports each year and to get your credit score from the national credit reporting companies. They are allowed to charge a reasonable fee, generally around $8, for the score. To order your free annual report from one or all the national credit reporting companies, and to purchase your credit score, visit www.annualcreditreport.com or call toll-free (877) 322-8228.
- Dispute errors in your file. Under the FCRA, both the credit reporting company and the credit lender that provided the information are responsible for correcting inaccurate or incomplete information in your report. If you ask, the credit reporting company must send notices of any corrections to anyone who received your report in the past six months. Corrected reports can also be requested for anyone who received a copy during the past two years for employment purposes. For more information on how to correct errors and sample letters visit http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.
- Keep working to improve the credit history and score you have by paying your credit card and loan bills on time and not maxing out your credit cards. If you need help, talk with a certified credit counselor at American Debt Counseling, Inc. at 1-888-DEBT-USA for a confidential and free review of your finances. If you are trying to establish a credit history for the first time learn more at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre32.shtm
