Young people, especially college graduates, seem to always lack one thing—experience. Employers tell young job applicants, “You just don’t have enough experience,” leaving them scratching their heads and asking, “How do I get experience in the first place?” The credit card game presents a similar dilemma. You need credit to build your score, but in some cases it may be hard to get credit at all. Not only does this affect young people, but it also takes a toll on immigrants and stay-at-home spouses and partners. Many people in these groups are denied when they apply for their first credit card or other new lines of credit. In fact, an estimated 70 million Americans don’t have enough required information to get a credit score. But things are changing. Here is a look at the 4 reasons why getting a credit card and building credit just got easier.
Reason #1 – The movement toward “non-traditional data”
In the past, credit scores did not incorporate rent and utility payments made on time. Even if you paid on time every month, you weren’t seeing a boost to your credit score. On the flipside, if your utility payments were late and sent to collections, the credit bureaus were likely notified and your credit score took a hit. That doesn’t sound fair, and credit bureaus, consumers, and legislators have noticed. Many credit scoring agencies are now using “non-traditional data” to give your credit score a boost based on payments you make toward:
- Telephone (landline and mobile)
What it means:
More people will now be eligible for credit scores and can begin building credit histories. As the movement toward the use of “non-traditional data” continues, these payments may come under more scrutiny. It’s certainly possible that one day utility companies will report automatically to the credit bureaus, and your ability to pay each month will have a consistent effect on your score. While this is great for young consumers and others who are really just building credit histories, it can have negative effects for consumers who fail to make timely payments.
Who currently participates?
This is a growing movement and seems to be gaining consistent momentum. Here are some groups and scoring models that currently use non-traditional data:
- The FICO Expansion Score
- Vantage 3.0
Reason #2 – New regulations for stay-at-home partners and spouses
Regulations have been updated regarding stay-at-home partners and spouses’ ability to qualify for new credit. Now, these consumers can use shared income when applying for credit accounts or limit increases, making them more likely to get approved. Before this change, these consumers were viewed by creditors as a higher risk and were often thought of as being unable to manage debt.
[Related Article: How to Pay off Debt for a Happier Marriage]
What it means:
This amendment will provide greater access to credit for American families. This is expected to directly impact 16 million people who are married but do not work outside of their home.
*Credit card issuers have six months to comply with this new regulation.
Reason #3 – VantageScore 3.0 to grant Over 27 million new credit scores
A new scoring model, VantageScore 3.0, recently announced that its model will allow for around 30 million more consumers to have credit scores. This is because the Vantage Score takes factors into consideration that others scores may not. VantageScore claims to include consumers who have not used credit recently, consumers who currently have no open accounts (likely due to a history of bankruptcy or collection issues), and those who stopped using credit but have recently started again (within the last 24 months).
What it means:
30 million more credit scores—that’s pretty significant stuff!
Reason #4 – Forgiveness for paid delinquent accounts
If you have an account in collections, your credit score will take a hit. Accounts with debt collection agencies are considered “predictive,” meaning that a negative effect on your score is certain. In the past, these accounts continued to hurt credit scores even after you paid them off. This was known as the “seven year sentence,” since the blemish would stay on your report for seven years. There is a growing trend to change this, and Vantage is leading the way. Under the new Vantage 3.0 model, paid collections accounts will not negatively impact credit scores.
What it means:
This change will allow more consumers to have a “second chance” if an account goes to a debt collection agency. Consumers who have an account in collections also have more incentive to pay off the account and can then enjoy easier access to future credit.
Will these changes make building credit easier for you?
Young people, immigrants, stay-at-home partners and spouses, and many others will be affected by these regulations. For most in these groups, getting a credit card and building credit just got easier. How will the changes affect your ability to get credit?
If you’d like more help with your credit, including a free credit score and review of your credit report with a professional, then we can help. Our counselors are experts at reviewing your situation thoroughly and working with you to make a personalized action plan. Check out our budget and credit counseling service today!