The New FICO Score: What It Means for You


If you’ve always maintained a strong payment history with your cellphone and cable bills and want a little credit for it, you may be in luck. Credit-scoring giant FICO just announced a new scoring model designed to give credit scores based on people’s payment history with their phone, utilities and other bills.

LexisNexis Risk Solutions and Equifax introduced the FICO Score XD to help lenders assess consumers who may not have a traditional credit history but have a strong record of paying non-credit accounts — things that are not in traditional credit scores. In the credit reporting and scoring industry, these people are called “credit invisibles,” and alternative credit scores like the FICO Score XD aim to make them visible to potential lenders.

For consumers who may be struggling to successfully achieve financing for a car, a house or personal loan, because of their lack of traditional credit history, FICO Score XD uses alternative data to determine if they are creditworthy. This data tool evaluates phone, cable, utility payments and public records to generate scores on the same 300 to 850 scale used for standard FICO scores. (You can see what’s considered a good credit score on that scale here.) The alternative payment history on cable, cellphones and utilities is sourced from National Consumer Telecom & Utilities Exchange.

“Alternative data is a critical component and really a driver of financial inclusion,” said Ankush Tewari, senior director, Credit Risk Decisioning at LexisNexis Risk Solutions. “Banks and other lenders are able to expand their addressable market and grow their businesses by leveraging scores that are built on models utilizing alternative data.”

FICO isn’t the only one experimenting with alternative credit scores, and it remains unclear how many lenders will actually use FICO Score XD when evaluating credit applicants. There are dozens of companies with their own credit-scoring formulas, and these companies often have more than one scoring model (FICO alone has more than 50 FICO credit score formulas). That can make it difficult for consumers to understand their credit scores, because every score is different.

The good news is there are many ways to see your credit scores for free — you can get two free credit scores every month on — but it’s important you don’t compare different scores to each other. The scales may be different (the FICO Score XD, for example, ranges from 300 to 850, but not all scores do), and the data and math driving the scores may be different, too. By tracking a specific credit score over time, you’ll see how your financial behaviors like payment history affect your credit.

If you don’t want to rely on the possibility of a lender using an alternative credit score in order to get credit, you may want to consider trying to establish credit with a secured credit card or a credit-builder loan.

Staying on top of your bills and keeping your finances under control are imperative to financial empowerment. You can view your credit score free of charge before applying for credit, an advisable measure. And be sure you know the basics when it comes to how your credit score is calculated.

More on Credit Reports & Credit Scores:

Image: Portra

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5 Little-Known Ways Your Partner Can Ruin Your Credit

5 Little-Known Ways Your Partner Can Ruin Your Credit

Planning to move in with your significant other or tie the knot in the near future? There are many exciting discussions to be had, but money matters may not be one of them. In fact, it’s the dreaded topic many couples prefer to stay away from. But doing so can have serious implications for your finances and your credit.

Let’s take a closer look at how your significant other can send your credit to the trenches:

Careless Money Management

In some households, there is an appointed financial manager and the other relies on him or her to handle business. Unfortunately, they may not exercise sound financial management habits, leaving you to pick up the pieces and repair your credit after the damage is done.

Minimal Credit History

Kudos to your partner for avoiding debt, but it can become an issue when you’re ready to open a joint account, activate utilities or make a major purchase. Reasoning: minimal credit history equates to elevated risk in the eyes of lenders and increases interest rates and deposits or even worse, disqualification.

Excessive Spending

No cash on hand? No problem. Paying with a credit card will do the trick.

If this your partner’s mentality, beware of the damage that can be done to your credit score if it’s a joint credit card and the spending gets out of control. Not only will your credit utilization ratio take a hit, but you could fall behind on payments if the minimum payment becomes too much to handle. (Another thought: only paying the minimum will quickly land you in a mountain of debt).

Impulse Purchases

This goes hand in hand with the last point. Whipping out the plastic each time you see a “must have” item is a recipe for disaster, especially if it’s a joint account and your partner is unaware of your actions.

Untimely Purchases

Late payment fees aren’t the only thing you have to worry about when you miss due dates. Your credit score could also take a hit if the delinquency spans beyond 30 days and the creditor or service provider reports the delinquency to the credit bureaus. So if you share any accounts and the party responsible for remitting payment drops the ball, down goes your credit score.

A Suggestion

Before taking the next step in your relationship, share money perspectives and credit reports with one another. Schedule an hour or so of your day for a meeting and cover the following:

  • Who will pay the bills
  • Debt-management practices
  • Joint checking and savings accounts, and if they will help thwart irresponsible spending habits
  • How to improve your credit score. (Visit to retrieve a free copy of your credit report. Also, take a look at this article to learn more about the types of credit scoring models).

If there are major discrepancies and credit issues, devise a realistic plan of action to get over the hump. This may be painful, but will mitigate the problem before it gets out of hand and costs you your relationship. 

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6 Lies About Credit Cards You Actually Believe

6 Lies About Credit Cards You Actually Believe

When it comes to credit cards, I’ve heard it all. There are so many myths floating around about the magic plastic that you may be tempted to avoid them altogether. Even worse, a lack of knowledge could lead to irresponsible use that could haunt you for years. Unfortunately, I was a part of the latter group and it ended up costing me a ton of cash to get out of the hole.

But you don’t have to fall into the same trap that I did. Here are some credit card myths you should be aware of:

1. Credit card applications are bad for my credit score.

Whether you’re seeking a temporary money fix or looking to take advantage of an irresistible introductory offer, chances are you’ve been warned to proceed with caution when applying for credit cards. And rightfully so; obtaining too many credit cards at once can be a disaster waiting to happen if the cards are not used responsibly or if you’re a credit newbie with limited credit history. Plus, new credit accounts account for ten percent of the unique FICO algorithm used to calculate your credit score. 

By contrast, having a stellar credit profile will minimize the damage done to your FICO score. Hard inquiries resulting from credit card applications do have a negative impact on your score, but it is very minimal as the decline will likely only be a few points.

2. It’s okay to exceed the credit limit.

Debt-utilization ratio, anyone?

While your credit card issuer may not assess an over-the-limit fee, that doesn’t necessarily mean it’s OK to continue swiping away even if you’re over the limit. In fact, maintaining a balance that exceeds your credit limit may hurt your credit since the amounts owed account for 30 percent of your FICO score. You could also find yourself with a higher APR for failing to exercise sound debt-management habits.

3. Not carrying a balance is detrimental to my credit health. 

To boost your credit score, it is necessary to show lenders you can responsibly manage your debt over time. However, it is not necessary to carry a balance each month. A smarter alternative: once the statement is released, pay the balance in full prior to the end of the grace period. That way, your credit utilization will remain low, you won’t pay interest, and the activity will report to the credit bureaus.

4. All I have to do is make the minimum payment to remain in good standing.

While making the minimum payment by the due date each month will reflect positively on the payment history portion of your credit report, your wallet will take a hit. To illustrate, the minimum payment on Bank of America credit cards only covers 1% of your balance, with the remainder allocated to interest and late fees (if applicable). The higher the balance, the longer it will take to eliminate the outstanding balance.

5. Credit cards come with a 30-day grace period before interest accrues.

If you think all cards come with a 30-day grace period until interest is assessed to your credit card balance, think again. You may be fortunate to have a card that gives you this lengthy time span to eliminate the balance before interest is applied, but some grace periods are 20 days or less.

6. Closing idle accounts will boost my credit score.

“By closing an old or unused card, you are essentially wiping away some of your available credit and there by increasing your credit utilization ratio,” says myFICO. Therefore, it’s best to keep idle accounts open for the sake of this ratio, which significantly impacts your credit score. Also, remember that closing a credit card won’t make it go away. 

Have you been tricked into believing any of these lies about credit cards? Please share your experiences in the comments below.

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