Don’t have any credit history to your name? Paying your cable, utility or cellular bill on time each and every month will now have a positive impact on your emerging credit profile under a new scoring model.
FICO is partnering with Equifax to develop what’s being called the FICO XD score, according to Forbes.
Assessing borrower risk in a new way
FICO XD is an alternative method to calculate your risk to a lender even if you’ve never had credit. It came about out of necessity because more and more Millennials are swearing off traditional credit.
So many people call me who have never had credit and need to build a credit history. What I’ve recommended in the past (see below) has been a bit of a tortured process.
Using how you pay regular monthly bills to be able to figure out if you are a risky borrower or not. So be sure you pay your cell, rent and power bill — and all your other monthly obligations — so creditors will be able to gauge even if you don’t have any other traditional payment history.
Secured credit cards take time to build your credit
The quickest way to build your credit remains a secured card or a fresh start program. Secured credit cards come in all flavors. There are legit ones and there are really crummy ones. I usually find that credit unions are among the best places to get a legitimate secured card.
The basic way it works is you put money on deposit with a credit union (or bank) and they use that as collateral for the card. You can only charge up as much as you have on deposit. This allows you to build a credit history where you previously had none.
Here are 3 things to look for in selecting a secured card:
- A reasonable annual fee of no more than $60
- No application fee
- After 12-18 months of paying on time, be sure the issuer will upgrade you to a traditional credit card.
Fresh start programs offer a faster route
My preferred way for you to get credit is more of a fast track: Join a credit union that has a ‘fresh start’ program and apply for their credit card. The fresh start program is an informal name for any of a number of initiatives at credit unions that are geared toward people who have never had credit before.
Like with a secured card, the fresh start program will have you put money on deposit with the credit union. Then the credit union will write you a small loan or issue you a Visa or MasterCard with a small limit against the money you put in savings. But unlike a secured card, the credit card from a fresh start program reports as regular credit from day one. And that’s why it’s better.
By the way, you can locate a credit union near you by visiting FindaCreditUnion.org and using their search tool.
For more money-saving advice, see our Money section.