What You Need To Know About New Alternative FICO Score

For years I have pointed out how ridiculous it is that people who don’t have credit cards, but responsibly pay-as-they-go with debit cards and cash, are put at a severe disadvantage in our financial system.

That’s because anyone who dares not to have a credit card likely doesn’t have a FICO credit score. And without a FICO credit score it’s all but impossible to get a regular credit card (a bit of a catch-22), or qualify for a mortgage or car loan, and it can even make it hard to rent a home.

Well, there’s potentially good news on the way. FICO has created a companion to its standard scoring system. Instead of relying so heavily on credit cards, the new “alternative” score—it doesn’t have an official name yet -will evaluate data that includes your history of timely payments for:

-Gas and Electric Bills

-Cable Bills

-Cell Phone and Landline Bills

FICO will also use data that tracks your known addresses; the idea being that the longer you have lived in your current residence, the more stable your finances may be. 

FICO says about 15 million people who don’t currently qualify for a standard FICO score will be given a score using the alternative data. Right now FICO’s alternative scores are being shared with a dozen credit card issuers in a pilot program. Consumers who are given a credit card based on this alternative score and then make timely payments on that new card over a six-month period will then be given a standard FICO score.

It’s unfortunate that the “solution” to finally get a traditional FICO score requires getting a credit card in the first place, given that so many people rightfully prefer to avoid credit cards. But I still see this as significant progress. At least we are finally getting recognition that paying your utility bills can be an important gauge of your financial responsibility.

For anyone who has never had a credit card, but is now sent an offer, here’s what you must do before you accept:

• Promise yourself you will only use the card a few times a month.

• Promise yourself you will only charge what you can pay off in full every month.  No unpaid balances, do you hear me!

If you can honestly fulfill those two promises, I think it is fine to take advantage of a credit card offer as an entryway to finally getting a standard FICO score.

And it should go without saying that the existence of this new alternative score makes it ever more important to automate all your bill payments. Now that your history paying the cell bill, your water bill, the gas and electric bill  etc.…is a building block to a traditional FICO score, you can’t afford to be sloppy and miss payments.