FICO’s Plan to Extend Credit Access Could Harm Those it Claims to Aid

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We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Tuesday, April 7th, 2015

We received some concerning news from the credit-scoring company FICO last week. FICO announced the start of a pilot program to introduce a new credit score based on “alternative” data, such as utilities and phone bills. These types of bills typically have been included in consumers’ three major credit reports only when they have been written off or sent to collections.

Consumers Union has long opposed the use of utilities payments in credit scores. Why?

We know that having a good credit score is increasingly vital to consumers. Credit scores are used by credit card companies and mortgage lenders in setting interest rates. They are often consulted by potential landlords as well.

But having a low credit score is often worse than having none at all. Along with our friends at the National Consumer Law Center (NCLC), we’re concerned that considering utilities payments in FICO scores will hurt economically vulnerable consumers. Utilities payments can skyrocket unexpectedly in a cold winter or sweltering summer, and consumers don’t always have the money to pay these bills on time. And even turning in one bill one month late could dock you 100 points on your FICO score.

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Millions of consumers could be hurt by including utilities in credit reports. For example, according to the NCLC, over 33% of low-income Massachusetts consumers were two months late turning in a payment to one electric company in June 2012.

FICO says that this new initiative will allow millions of consumers to get a FICO score for the first time. But the NCLC’s research shows that it could harm, not help, many low-income consumers.

We agree that more consumers should have access to credit – but mandatory reporting of utilities data isn’t the way to do it.

We want to hear from consumers like you – share your credit score story!

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