A Credit Score Without Credit Cards [AUDIO]
You could soon be earning a credit score, good or bad, without owning a credit card or mortgage. A recently-announced score model, used by a majority of credit card issuers and mortgage lenders, can measure a person's creditworthiness based on things like rent and phone bills.
VantageScore said their new system, set to kick in next month, will help 27 to 30 million adult consumers who have little or no credit history.
"Today's competitive lending environment dictates that lenders need access to as many creditworthy consumers as possible within their target universe, demanding the highest level of predictive performance from the credit scoring models they use," VantageScore said.
The change can have a positive or negative effect on consumers. It could eliminate a hurdle for people attempting to establish traditional credit, without dealing with the risk of opening a credit card or financing an automobile. Even someone who has lost a home to foreclosure can rebuild their score by keeping up with their rent each month.
However, folks who fall behind on their phone bill and rent regularly could be damaging their credit scores, making it harder to get a loan in the future.
"People are going to have to really start focusing on some of the things they may not have taken as seriously," said Bruce McClary with ClearPoint Credit Counseling Solutions.
McClary indicated that FICO, a VantageScore competitor, is considering similar changes.
The new system also gives consumers some financial help during natural disasters like Superstorm Sandy. Consumers can exclude their accounts that turn delinquent because of a natural disaster, while keeping their healthy accounts in play.
According to VantageScore's web site, their model is used by seven out of the top ten financial institutions, six out of the top ten credit card issuers, four out of the top ten auto lenders and four out of the top five mortgage lenders.