What’s Worse Than a BAD Credit History? NO CREDIT HISTORY AT ALL!

It may not be a well-know fact, but the truth is a lot of financially-responsible people are turned down for loans because they have NO history of recent borrowing. None.

This may be because the person saves up and pays for purchases without financing, or because they have not bothered to start building a new credit history by borrowing (and showing on-time payments) after a major financial event such as a bankruptcy or foreclosure.

After a bankruptcy discharge, a debtor needs to make sure that, after his or her case closes, there is a new credit history being reported with either new lines of credit that are opened, or old lines that were maintained and still being used.

Many of these individuals are credit-worthy but the current credit reporting and scoring system is not set up to evaluate this.

To get at this problem, Fair Issac Corp, also known by the acronym “FICO,” announced this week it is launching a pilot program to provide credit scores using alternative data including payment history on utility bills, cable bills and cellphone bills as well as other information in the public record such as the number of addresses the person has had in the recent past (an indicator of stability).

Right now some 53 million Americans don’t have FICO scores. Under the new system, it is estimated some 15 million will now be scorable for credit application purposes.

The program is not without it’s critics. Some consumer advocates are afraid that the new system will add more sources of possible negative information which could be problematic for consumers living in extreme climates where utility bills can sometimes spike causing the customer to fall behind on a payment.

And of course the new program is being encouraged by lenders to open up credit markets for more people.

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