The Catch-22 of the credit world is that you can't get
credit unless you have a credit score, but you can't get a credit score unless
you have credit in the first place.
Since
1989, the FICO score is the
prevailing metric that measures the probability that you'll repay a loan,
whether it is a mortgage, an auto loan or a credit card bill. The score ranges
from 300 to 850. These days, employers, landlords and even prospective dates use credit
scores as a proxy for a "deadbeat" metric.
After nearly 30
years, FICO thinks it has a way to use big data to solve the problem of getting
people started on the road to a credit history. Instead of just looking at past
credit card payment history, FICO XD looks deep into
a database that has payment data on a person's utility, cable, telephone bills
and, to a lesser extent, rental payment data.
"We're able to score an additional 50
million people," said William Lansing, FICO's chief executive.
Millennials who are just getting
started in the workforce would be beneficiaries of the new system, as would
immigrants and anyone who has previously eschewed a credit card for whatever
reason. "There are a lot of people like that, trying to break into the
financial system and get connected," says Lansing.
If you are applying for some kind of
credit, the bank will run your information through the traditional FICO
database. If you come up blank, they will have the option of running you
through the FICO XD system (if the lender subscribes). If you have enough data
in the new system, you would be assigned a score on the same number scale as
the regular FICO score. The bank would then use that score to determine whether
to approve your application.
FICO has been running tests with 12 banks,
Lansing said. About a third of those previously not scored rated 620 or more on
the XD scale, which is the common dividing line where banks are comfortable
extending credit.
"Then very quickly, the person builds
up enough history, and then they really are in the system," he said.
A person's XD score should be roughly the
same as their regular FICO score once they get going, Lansing added, because if
you pay your cable and electric bill on time regularly, you're likely to pay
your new credit card on time too.
The XD program does nothing
for those already in the regular FICO system who have bad credit. To find out
your credit score, it
may be available from your bank, or you can get a free annual copy of your credit
report (but not the three-digit score). For those with scores
below 620, the only way to raise scores is the traditional route: Start paying
your bills on time.
