Since credit scores are based on the way a consumer uses his or her credit, being thrifty and not going into debt can be a hindrance when credit is needed.
If you’re facing this problem, you aren’t alone. FICO estimates that approximately 25% of the US adult population lacks enough credit data to generate a traditional credit score.
Credit accounts that are closed because they’ve been paid in full drop off your credit report 10 years from the date the account was closed. A closed account with negative information is deleted 7 years after the last delinquency. So if you haven’t used credit since 1999, you could find it difficult to get a new loan today. The credit bureaus simply don’t have anything to report about you.
Before underwriting became computer-driven, mortgage lenders could ask potential borrowers to bring in receipts for rent payments, utilities, insurance, etc. Underwriting was done manually, and the underwriter could take those payments into consideration.
Then manual underwriting went the way of the dinosaur and mortgage lenders advised would-be clients to get some credit from a source that reports to the credit bureaus and use it for a while before trying to buy a home.
That generally meant getting and using a credit card.
Lack of credit also hurts consumers buying cars – because without a credit score to offer proof of good money management skills, consumers are charged high interest rates.
The Good News: You can still get credit for good money management.
What most consumers don’t realize is that it is still possible to get credit – and higher credit scores – when you haven’t been using credit. The catch is that you have to find a lender who uses the FICO Expansion Score. Right now there are only about 500 lenders using this expanded service from FICO.
FICO is advertising it, however. So perhaps more will sign on in the future.
The FICO Expansion Score calculates your credit score based on whatever credit you do use, plus nontraditional credit information such as rent payments, utilities, phone bills, etc.
Interestingly, the Expansion Score appears to be a throw-back to the early days of credit reporting. According to the FICO website, credit risk is based on additional financial information such as checking accounts, property, and public records.
Back when credit bureaus were local businesses, employees not only checked public records, they checked local newspapers and recorded any negative information in consumers’ credit files.
Author: Marte
CreditScoreQuick.com
