New FICO Score Opens Scoring for Millions

Utility History and More can help Generate a Score

Credit Report
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A credit score is almost a necessity if you want to borrow money on good terms. However, millions of Americans have “thin” credit files, meaning there is not enough information available to generate a credit score for those individuals. In the past, that meant it might be difficult or impossible to get a loan – or those individuals would have to borrow from alternative (sometimes predatory) lenders that might charge more and offer fewer options.

That all might change soon. The Fair Isaac Corporation, which developed the popular FICO credit score, recently announced the creation of a new (yet-to-be-named) credit scoring model. That model will be able to generate scores for people with thin credit files. We asked Jonathan Roisman from to fill in some details of these new scores.

1. Can you provide a brief overview of the new scores?

JR: The new FICO score will provide those with bad or no credit history the ability to build one by raising their creditworthiness, or what a lender uses to determine how likely a borrower is to repay a loan. Unlike traditional FICO scores, which are based only on your credit report history, this new score, which is calculated by Equifax and LexisNexis, will use alternative data to prove someone’s creditworthiness. This alternative data includes the payment history on utility, cable and cell phone bills.

In essence, this new score is allowing millions of Americans (an estimated 15 million) the opportunity to get approved for credit and raise their traditional FICO scores – something that wasn’t an option before this.

2. Are we talking about “alternative” scores? How are they different from a traditional FICO?

JR: Yes, however this alternative score will only be applied to individuals who have no or bad credit. Since these individuals are unable to get approved for loans using their traditional FICO scores, this new score is allowing them to get approval using their payment history on cable, cell phone and utility bills. The three traditional FICO scores, which most people will continue using to apply for credit, provided by Equifax, Experian and TransUnion are based on five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit accounts (10%) and types of credit in use (10%). These scores are only based on your credit report history, which means your record of paying your car loan, credit cards, personal loans or mortgages.

3. Who benefits most from these scores?

JR: Those who have no credit history at all or who have bad credit because of a major financial event, such as a bankruptcy or foreclosure, will benefit from the new FICO score. This is because the score is based on data that’s not traditionally used in calculating FICO scores. Many people don’t have a credit history because they don’t use credit, but are still trustworthy of repayment on their bills.

Now those individuals will have the opportunity to build credit history by paying their regular bills, such as utility and cell phone bills, on time.

4. What types of loans can consumers expect to have these used with, and what loans will these scores most likely NOT be used with?

JR: Consumers’ new alternative FICO score will be used by 12 of the largest U.S. credit card issuers to determine their creditworthiness. This score is still in the pilot phase, however, it will only be used to get accepted for credit cards, as opposed to higher-risk loans, such as car loans or mortgages.

5. Might these scores be used for other purposes besides loans (getting insurance, job/background checks, etc)?

JR: No, only 12 (so far unnamed) credit card issuers can see the new score, which means it will not be used for anything other than determining whether someone should be issued a credit card.

That said, this score is still in the pilot phase so it might be provided to a wider variety of credit card issuers in the future.

6. What do people misunderstand most about these types of scores, or what has been a surprise for you?

JR: Many people in general don’t understand how their FICO credit scores are calculated because the formula is complicated and not totally transparent. The new FICO score is even harder to understand because there currently isn’t any information specifically detailing how the score will rise or all of the details about the score, especially since it’s just in the pilot phase. That said, it’s assumed that as long as you pay your utility, cell phone and cable bills on time and in full, your credit score will rise.

7. What can consumers do to make sure they get and keep good scores?

JR: The best way to raise your credit scores, regardless of whether it’s a traditional FICO score or one using alternative data, is to pay your bills on time and in full whenever possible. In addition, in regards to your traditional FICO scores, you want to make sure you have more than one type of credit (such as a credit card and a loan or mortgage) as well as work to lower your credit utilization ratio, which helps determine the amounts owed (30%) section of your FICO score. Your credit utilization ratio is calculated by dividing your total used credit by your total available credit to get a percentage, which is recommended to be 30% or under.

8. Do consumers pay to use these scores?

JR: No, consumers do not have to pay to use these scores, although they do have to have bad or no credit history for an issuer to use them.

9. Any predictions (or guesses) on how this will evolve – what can we expect going forward?

JR: It’s still in the pilot phase, but the new FICO score program is expected to expand later in the year. If the program does expand to more credit card issuers, as it’s expected to, that means more people will get access to the potential of building a credit history and raising their traditional FICO scores.

10. Anything else we should know about the scores?

JR: A timetable for the complete rollout of this new score hasn’t been detailed yet, but it has the potential to allow millions of people get the opportunity to build their credit history – an opportunity that they didn’t have before.

Thanks again to Jonathan Roisman from for this great information.