Curve

Higher credit scores likely in 2019 and here’s why

Peter Miller
The Mortgage Reports contributor

A painless way to better credit?

Americans are constantly in search of easy ways to get higher credit scores. Everything from mortgages to auto loans to insurance is cheaper when you have good credit. And now, Experian promises a relatively painless way of boosting your FICO score. So, what’s the catch?

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Experian promises higher credit scores (if you’ll let them into your bank account)

Credit scores have been creeping up and credit bureaus tweak their systems to get information that is more predictive of your future performance with debt. They updated the rules regarding medical bills so they only count against you if unpaid for at least six months.

In addition, credit reports no longer include liens and judgments unless they show the individual’s name, address, Social Security number and/or date of birth.

But a third change, a change which is entirely new, is the growing interest in personal cash flow, the way money moves in and out of your bank account. If you will allow the credit industry to look at your accounts, you might see higher credit scores.

Two major players in the field, Fair Isaac and Experian, have already announced new programs for 2019 to track bank account cash.

Bank account monitoring & higher credit scores

Credit scoring has traditionally been based on payment history and credit usage. Whether you pay bills on time or not is information that you and your creditor both know. If you have a $5,000 line-of-credit and only use $800, that’s also shared data, information known both to the consumer and the credit source.

With UltraFICO and Experian Boost, the system will look at how your money moves. Unlike bill payments or the use of credit lines, cash spending has to this point been a private matter. With UltraFICO and Experian Boost the credit system will be able to see your cash flow.

According to Fair Isaac, “Many consumers are still locked out of mainstream credit, including 79 million Americans who have sub-prime scores (680 or below) and 53 million Americans with not enough data on record.

“With the UltraFICO scoring system to be introduced in 2019, the company estimates that “seven out of 10 consumers who exhibit responsible financial behavior in their checking and savings accounts could improve their score.”

Benefits

“Through the new platform,” says Experian, “consumers can grant permission for Experian Boost to connect to their online bank accounts to identify and access utility and telecommunications payments. After a consumer verifies the data and confirms they want it added to their Experian credit file, an updated FICO Score is delivered in real time.”

“Consumers with thin credit files (less than five trade lines) and scores between 580 to 669 will benefit the most from the new program,” said Experian. The company added that:

  • Two out of three credit scores improved
  • 10 percent of thin-file consumers became scoreable
  • For consumers with a score below 680, 75 percent saw an improvement in their credit score
  • 14 percent of consumers with a credit score at or below 579 moved to a near prime score. Between 620 – 679
  • Depending on credit tier, 5 -15 percent moved into a better score category

Privacy versus higher credit scores

To this point, the credit industry has not had access to your bank and checking accounts. They still won’t in 2019 unless you agree to give access. If you allow the credit bureaus to peek at your accounts, they will gain access to “permissioned data.”  That’s an opt-in data connection only you can authorize.

Payment history and credit usage are “public.” That’s not true with cash flow. Under the new system, consumers will lose some privacy. The movement of cash in and out of your savings and checking accounts will be better known and understood.

To get higher scores, millions of people will allow the credit industry to track bank account activity. Privacy – sometimes defined as “the right to be left alone” – is a huge concern for many consumers. Individuals who now have high scores, people who now have lots of data on record, may decide they don’t need the credit score boost that bank account access may provide. For them, privacy might be the bigger value.

Other ways to increase your credit score

Whether you elect to participate in the new program, or not, there are steps you can take to get a higher credit score.

First, establish a household budget. See how much you have coming in, how much you spend, and how much you save. Adjust as necessary.

Second, check your credit reports for free at AnnualCreditReport.com. Any information which is factually incorrect or out-of-date can reduce your credit score. If you find problems contact the credit reporting agency immediately.

Third, be smart about credit. For instance, request a higher credit limit – and then don’t use it. This will make your credit utilization look better.

Fourth, pay down current balances – and always make payments in full and on time.

Fifth, consider replacing high-cost credit debt with a lower-cost personal loan or home equity line of credit (HELOC).

Sixth, become an “authorized user” of someone else’s credit card. This means you piggy-back on someone else’s credit standing. But it can be a double-edged sword. if your friend or relative pays on time, your credit history is enhanced. But if they pay late, that hurts you also.

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