Boosting your credit score often requires months or even years of near-perfect financial behavior and decisions. This proves to be difficult for most people, and they remain stuck in the lower range of credit scores.
But a new tool from Experian (one of the three major credit bureaus) called Experian Boost™ provides another way of increasing the creditworthiness of millions of Americans, especially those that have little or no previous history of borrowing. That itself is a dilemma, as lenders are reluctant to lend to people who have no prior borrowing history.
Below, we’ll explore Experian Boost to give you a better understanding of what it is and how it could help you.
How Experian Boost Works
The concept behind Boost is to help consumers by recognizing timely payments of utility bills and cell phone bills in calculating their FICO® Score. These financial aspects are often ignored by credit bureaus, and they can help boost the score of millions of Americans.
To start off, Experian Boost users won’t have to pay anything. This service caters to people struggling to achieve better credit or build credit from scratch.
Individuals looking to boost their FICO® Score through Boost must authorize Experian Boost to access their bank account statements to identify cell phone and utility bill payments. Experian takes this information and uses it to adjust your Experian credit report and FICO Score.
One thing to note here is that Boost will only count your positive payment history and will not consider any defaulted or missed payments on your cell phone or utility bills. This makes the concept different from conventional methods of calculating credit scores where defaulted or missed payments hurt your score.
As stated, to take advantage of Boost, you have to authorize Experian to access your bank accounts via their website. Upon verification and confirmation to include the data in your credit file, a new FICO® Score is delivered to you within a few minutes. The entire process takes about 5 minutes, and it results in an increased FICO Score almost immediately.
Is Experian Boost Effective?
In initial testing, Experian stated that:
- Two out of three people saw a rise in their FICO Scores
- 10% of the consumers with thin files due to insufficient credit history will be eligible for a FICO Score after using Boost
- Average FICO Scores increased by over 10 points
- 75% of Boost users with a FICO Score below 680 had their scores improved
Do You Stand to Benefit by Using Experian Boost?
When you apply for a loan or a line of credit, lenders utilize the scores from either all or any of three credit bureaus. Each bureau issues different versions of your scores.
Boost only affects your Experian Credit report, FICO® 8 score, FICO 9 score, VantageScore 3 or VantageScore 4 credit scores.
According to the company behind Boost, the tool would be optimal for those who have less than five trade lines or a FICO® Score between 580 and 670. However, most customers can take advantage of Experian Boost, and the company estimates that 66% of consumers will see an improvement in their scores after using the tool.
The following are the groups best positioned to take advantage of Experian Boost.
- Consumers with subprime credit scores: These individuals can boost their FICO Score when applying for loans or mortgages and get better deals than they would have obtained otherwise.
- Young adults: Experian Boost can be a significant advantage for people without much credit history and lenders are reluctant to lend to such people as they have no track record.
- Responsible customers: There are many people with a tremendous financial discipline whose timely payments are not reflected in their credit reports. Boost can help bridge the gap and make such individuals eligible for better loans and various credit.
With the launch of Boost, Experian expects to see almost two-thirds of consumers witnessing an improvement in their FICO® Score if they choose to use the tool.
Just to show you the wonders of an improved credit score, here’s how much a bad credit score costs a person. Consider this:
An individual with a subprime credit score has to dish out about $200,000 more during their life as opposed to those with better credit.
Experian Boost is moving someone from the denial zone into a marginal approval zone for credit.
More Access to Credit
The Experian Boost tool comes at a time when consumer advocates, lenders, and even the government (Consumer Financial Protection Bureau, to be precise) are looking for new avenues to ease access to credit. This holds especially true for people on the verge of qualifying. It is also helpful for those individuals who have no previous credit history but have displayed financial responsibility through timely payments of their bills.
The company plans to broaden the net of Experian Boost beyond telecom and utility bill payments, considering other types of timely transactions.
Pros and Cons
Easy boost for people with bad or thin credit files — If you have little credit or poor credit, Experian Boost can give you a quick and easy boost by simply connecting your bank accounts and paying your other bills on time.
Comes with 256-Bit SSL encryption — Experian provides 256-bit SSL encryption with Experian Boost, so you know your data is secure. What isn’t clear is exactly what data is being collected (see cons below).
Credit score increases occur instantaneously — Once you give Experian Boost your bill payment history, they state your updated FICO® Score (if anything does change) will be shown to you right away.
Monitoring of your FICO® score for free — Using Experian Boost gives you access to free FICO Score monitoring by Experian. They’ll let you know if and when your FICO Score increases or decreases, for no additional cost to you.
Possible privacy and security concerns — According to Experian, you need to “grant permission for Experian Boost to connect to [your] online bank accounts to identify and access utility and telecommunications payments.” Experian doesn’t clarify what t
Your FICO® Score won’t necessarily improve — By using Experian Boost, you give yourself another means to improve your credit, but this doesn’t guarantee a thing. So you’re giving up some data by letting Experian access your bank accounts and not getting anything guaranteed in return.
The odds are actually low — Only 5% to 10% of people moved up one credit tier. For some, this might be significant; but for others, you may be better off getting a secured card and doing it the old-fashioned way.
Alternatives to Experian Boost
Experian is testing another tool to assist with boosting credit scores in partnership with FICO®. The tool, called UltraFICO, is also being developed to aid thin-file consumers.
By analyzing cash balances, UltraFICO® is positioning itself to help customers without any credit or insufficient credit history. The tool aims to help them by proving they are viable for credit through the management of their cash accounts.
Like Experian Boost, UltraFICO® also needs to access your bank account to assess your financial behavior. But unlike Boost, UltraFICO will not be looking at your telecom and utility bill payments. Instead, it will look at your savings account and whether any of your accounts (for example, checking) have any overdrafts.
Related: Experian Boost™ vs UltraFico
There are also other ways to improve your credit score. The steps below can lead to a higher score by all three credit bureaus.
- By utilizing a rent reporting service, you could improve your credit score given you make timely payments. Some companies offer to do this service and report your rent payments to the credit bureaus.
- Applying for a secured credit card is like a safety net, so you miss no payments due to negligence. The card is meant for starters and is backed by a certain amount that acts as both your deposit and your credit limit. The deposit means you are not drawing on too much credit and an automatic payment is a shield against missed or forgotten due dates. Both of these actions can have adverse effects on your credit score.
- Becoming an authorized user of someone else’s credit card leads to the advantage of you taking benefit of their excellent score. This happens when someone with an established line of credit, includes you as an authorized user.
Your credit score is an essential contributor to your financial health. It is the ultimate factor in determining whether you qualify for a loan, a mortgage or a line of credit and the interest rate you pay. A low score means higher interest rate payments and might ultimately lead you to be disqualified.
Experian Boost can help increase your FICO® Score particularly if you do not have a history of loans or a credit card in your own name.
Permission granted to Boost to access your banking transactions can be withdrawn at any time, and you can opt-out of the service. With no cost and hassle-free signup, Experian Boost looks to be promising and exciting. With an improved FICO® Score, you can get approved for the mortgage to buy your dream house, lower the cost of borrowing (interest rates) significantly, and even become eligible for a higher line of credit.
[ctbrand_disclosure id=232146367 /]