Lenders are generally reluctant to extend credit to consumers who don't have a lengthy credit history and, as a result, have a low credit score. So, if you're just starting out or you lack a traditional credit history, you might have difficulty getting a credit card, taking out a car loan, or getting a mortgage.
To address this issue, the credit reporting bureau Experian announced on November 7, 2019, that it will introduce a new scoring system called "Experian Lift" sometime in 2020. This revised scoring formula will use trended data, and other nontraditional factors, to help credit-invisible consumers (those with no credit history) and those who have a "thin" credit file (not much credit history) get a better credit score.
Experian Lift looks at how consumers manage their credit over 24 months to come up with a credit score. To do this, it combines traditional credit scoring data with other factors. For example, the score takes into account whether you typically pay off your credit card balances in full or incur interest each month. It also considers other factors, including your rental payments, if any, and whether you have a professional license.
Lenders can choose to use Experian Lift to help score a consumer who doesn't have a traditional credit file. For some people—especially those with no credit history or a thin credit file—this system will result in an improved credit score, which could make it easier to get new credit.
Similarly, FICO announced that it is rolling out a new credit scoring system in the summer of 2020, which includes a credit score called the "FICO Score 10T." To generate this score, FICO looks at a consumer's overall borrowing patterns. This score, much like Experian Lift, takes into account trended data over a 24-month period, including whether a consumer's debt levels are increasing and whether the consumer has recently missed payments.
Experian plans to make its new credit score available to lenders in early 2020. But whether a particular lender chooses to use this score is up to that lender. Lenders have traditionally been reluctant to accept new kinds of scores. So, instead of being too concerned about which particular score a lender is using, it's a good idea to concentrate on maintaining responsible spending practices. Try to pay off your credit card balance in full, stay current with your other bills, keep your debt levels and debt-utilization levels low, and take action if you need to start improving your credit score.
Effective date: November 7, 2019