The FICO score is the most popular credit score formula that lenders use to weigh the risk of a consumer. But there’s one common complaint with the FICO scoring formula, especially among younger consumers – and that the fact that it takes into account past credit history. In fact, past credit history makes up about 15 percent of the FICO score as it stands today, something that can work against young consumers who may not have the likes of credit cards, auto loans, home loans and more working in their favor.
However, this could soon be changing thanks to a new FICO score – FICO Score XD – that’s designed for consumers that may not have a traditional credit history to fall back on.
FICO Score XD: The Basics
The big difference between the conventional FICO score and FICO Score XD is that the latter will put a greater emphasis in judging a consumer based on their history of paying non-credit accounts (i.e. cable bill, phone bill, utility bills, etc.). In other words, the model won’t penalize consumers who may not have a traditional credit history, and will instead weigh the “credit invisibles” accordingly so that they’re not penalized as much for it.
FICO Score XD could be a big help to consumers who are attempting to acquire that first credit card or car loan.
The FICO Score XD will also still feature a scale ranging from 300 to 850.
It’s also worth noting that FICO is hardly the only one that is working on or employing an alternative formula for different types of consumers.
Working on Your Credit History
The FICO Score XD will be able to help consumers without traditional credit history, but it remains to be seen how many lenders are actually going to use it to weigh decisions on whether or not to grant approval. So while the FICO Score XD can certainly help if enough lenders embrace it, consumers should also take measures to make sure that they’re building positive credit history. For instance:
- Get a secured credit card: While these alternative cards can come with high fees, they’re ideal in that they report on-time payments to all three of the major credit bureaus. What’s more is that you’re pretty much guaranteed approval for a secured card, regardless of your credit score.
- Become an authorized user: While there’s risk involved with this, becoming an authorized user enables you to make purchases on an account holder’s credit card. As long as you’re making payments on time, it should help your credit score.
- Check your report: You can check your credit report for free at least once a year, and this can be a good way to judge just how much your credit history is hurting you and to what lengths you should go to improve it.