College students, it’s more important now than ever to pay your cellphone and electric bill on time. If you’re chronically late, it could end up hurting your credit score.
Fair Isaac Corp. announced a new credit-scoring system pilot program, which is based on consumers’ record of paying bills, including utility, cable and cellphone bills. The new approach is designed to benefit some 15 million consumers who don’t have enough credit data to generate a traditional FICO score, Fair Isaac said.
Jim Wehmann, FICO’s executive vice president for Scores, said in a statement:
“We’re excited by our pilot program’s strong results thus far. FICO’s focus is on expanding access to credit; not simply scoring more people. Our approach also addresses a paradox for people seeking their first traditional credit product – you often need a credit history before you can get traditional credit.”
Some consumer advocates are challenging parts of the program, which is still in its pilot phase. The National Consumer Law Center argues that including utility bill payment history could adversely affect poorer people:
Many low-income customers would receive negative marks for a 30- or 60-day late payment during months when utility costs are high, even though they eventually catch up when costs are lower (e.g., in summer months for cold winter states). These negative marks are damaging; FICO has indicated that a single 30-day late payment damages a credit score by as much as 60 to 110 points.
The new approach could also have major implications for college students, who typically have very little credit history. Having a low (or no) FICO score could wreak havoc on a young college graduate’s chance of getting a loan or a low interest rate, The Wall Street Journal reported.
So, it’s more important than ever for college students to be diligent about paying all their bills on time. They should also try to avoid moving around and changing addresses.
“The new score incorporates this factor as well, with frequent address changes suggesting less stability,” the WSJ said.
What do you think of FICO’s new credit-scoring approach? Share your comments below or on our Facebook page.
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