Lenders are generally reluctant to extend credit to consumers who don’t have a lengthy credit history. So, if you’re just starting out, you might have difficulty renting an apartment, getting a car loan, or taking out a mortgage. To address this situation, in early 2019, Experian is introducing Experian Boost—an online platform that allows you to potentially raise your credit score if you have a "thin" credit file (not much credit history).
With Experian Boost, you provide Experian—a credit reporting agency—with access to your bank account. Experian then looks at whether you regularly pay your utility and telecom bills, and factors that information in when calculating your credit score. As a result, some people might be able to get a higher credit score, making it easier to get new credit.
Though, even if your new score (assuming it goes up) makes it easier for you to get credit, you should carefully consider whether it's a good idea to do so. Also, you should be careful about making your bank account information available for this purpose.
Once you give Experian permission to connect to your online bank accounts, it can identify utility and telecommunications payments. Information about those payments is then added to your Experian credit report and used to create an updated FICO score.
According to Experian’s research, 75% of consumers who have FICO scores below 680 got an improvement in their credit scores with Experian Boost, and 10% of consumers who previously had a thin credit file gained enough credit history to get a credit score. Experian’s early tests also showed that 8 million people could potentially move into the “Fair” (580-669) or “Good” (670-739) FICO credit score ranges after using Experian Boost.
If you want to sign up for Experian Boost, you can go to the Experian website. But before you do, keep reading—you might want to reconsider.
Experian indicates that the Boost platform will count only your positive payment history when calculating your revised score. (Usually, late or missed payments are included in your credit report and they typically reduce your score.) This different approach is a tactic by Experian to raise scores, which in turn helps lenders make more loans and extend more credit to consumers. But depending on what your bank account shows and how Experian factors your banking activity into its calculation, your score might not actually improve.
Plus, you might not increase your chances of getting approved for a particular loan or type of credit. That's because whatever lender or creditor you've selected could base its decision about whether to lend to you on information from one of the other credit reporting agencies—Equifax or TransUnion—rather than Experian. (The three different major credit reporting agencies that keep a record of your credit history to produce credit reports and scores are Equifax, Experian, and TransUnion).
Also, many different types of credit scores exist. Experian Boost credit scores are calculated based on the FICO Score 8 model. While this model is the most-used formula, your lender might use a different kind of FICO score, or another type of credit score entirely.
Generally, a scoring system that takes into account utility and telecommunications payment history and could raise your credit score sounds like a good thing. But the concerning part about this new scoring system is that it was developed basically as a mechanism to increase loan approvals and make it easier for consumers to get credit.
Just because a lender will make a loan to you or give you credit, doesn’t mean you should take it. Ultimately, you’re in the best position to determine whether you can afford to take on new debt.
A massive data breach at Equifax—another credit reporting agency—in 2017 compromised the personal information, including Social Security numbers, of at least 147 million consumers and put those consumers at serious risk of identity theft. On July 22, 2019, Equifax agreed to a settlement in which it will pay around $500 million to those affected. Under the settlement terms, Equifax must provide free credit monitoring and identity theft assistance, as well as provide cash payments, to people whose information was exposed in the hack. (To learn more, see Equifax Data Breach Settlement: How to Get Compensation.)
As with any decision, using Experian Boost has pros and cons. You should carefully consider whether you should provide your bank account information to a third party, like a credit reporting bureau, knowing that hackers could potentially get that information someday. It might not be worth the risk. But if you don't have much of a credit history and need to build up your credit files, you might decide to go ahead with it. Also, along with using this product, you should consider employing other ways to build your credit.
If you want to strengthen your credit history, you might also consider:
To learn more about different ways to establish credit, read Ways to Rebuild Your Credit.
Effective date: December 18, 2018