So here is an interesting scenario. Is it worth it to you to swap personal financial information in exchange for a limited boost in your FICO credit score?
Some Financial Basics
There are three primary credit reporting agencies in the US - Equifax, Experian and TransUnion, who collect financial information on you. This information (your credit history) is collected and maintained by these agencies and is known as your credit report.
The main focus of this financial data is on a consumers debt borrowing and payment habits.
These credit reporting agencies rely on outside companies to report your financial information to them and not all of your financial information is reported to each of the agencies, therefore, the information maintained on you may be somewhat different with each of the agencies.
Companies that are in the business of lending money (mortgage company, banks, credit unions), insurance companies, credit card companies, prospective employers, and other companies will request your credit report from one of these credit reporting agencies as a means to help predict risk as part of their application review process.
The Fair Isaac Corporation takes your credit report and runs it through a proprietary algorithm (formula) to generate your three-digit FICO® Score, which ranges between 300 - 850.
Your FICO® Score is based on the information in your credit report at the time it is requested. As your financial information changes, so to will your FICO® Score.
You actually have multiple FICO® Scores that can be generated depending on the requirements specified by the lender or company making the request.
The most commonly used FICO® Score is the FICO Score 8. It was introduced by the Fair Isaac Corporation (FICO) in 2009 as an improvement over previous versions.
Fair Isaac Corporation (FICO) is continually modifying its scoring models in an effort to make them better, and the FICO Score 8 is not the most recent version, however, it is still the most widely used today.
The FICO Score 9 is even newer and possibly better depending on individual circumstances. It was released in 2014 (five years after the FICO Score 8), partially as a response to how people were being unfairly penalized for medical billing practices.
With this basic overview of how and why credit reports and FICO® Scores are derived, let's take a look at the even bigger picture of this industry.
Credit Bureaus and Your Information
Each of the three major credit bureaus currently maintains a database on approximately 220 million U.S. consumers. Whether you are applying for a personal loan, an auto loan or a credit card, submitting a rental/lease application, applying for a mortgage, purchasing insurance coverage, chances are at least one of your credit reports will be requested in the application review process.
Credit reports affect your life in more ways than most people realize. And because your credit report(s) are such an integral component of the financial industry, the credit reporting agencies, who control the compiling of your financial data and the selling of this data, have a great deal of influence over your financial life.
Credit Bureaus = Big Data = Big Money
The credit reporting industry, often referred to as 'Big Data', brings in big money with your financial information and that of 220 million other consumers. Billions of dollars are earned yearly by these three agencies with the financial and other information collected about you and sold to others who are willing to pay for that data.
In 2019, Experian introduced a new program called Experian Boost, designed to give consumers the opportunity of increasing their FICO Score (specifically the FICO Score 8) in exchange for giving Experian permission to access their online banking accounts to look at utility, cable TV and phone payments.
“It’s the first time that consumers have been able to do this,” said Jeff Softley, chief marketing officer for Experian Consumer Services. “This record of recurring payments will build out a consumer's positive payment history and length of credit, so the majority of people who use the product will see an instant improvement in their credit score.” Consumers with limited credit history and low credit scores (between 580 and 669) will benefit the most from Experian Boost, Softley said.
Fair Isaac Corporation, the company that created the FICO credit score, has unveiled a new scoring system, UltraFICO, (in partnership with Experian) that includes consumers’ checking and saving account information.
Nessa Feddis, a senior vice president with the American Bankers Association, called the Experian Boost and UltraFICO “potentially great tools” that will “expand credit to people who might not qualify under traditional underwriting standards.”
While there appears to be some positive benefits to these programs, at least for a smaller segment of the overall consumer population, there is also a very apparent built-in self interest component to the programs. By devising ways for more people to qualify for credit, new financial data will be created for these individuals. This data will then be reported to the credit bureaus who in turn will combine this new data with the existing data they have on you and sell the newly compiled data to companies looking to buy it. Overall, possibly a 'win-win' scenario for all. However, does anyone get the same uncomfortable feeling I have that these credit reporting agencies maybe have too much information about me at their disposal? And keep in mind, this information has been collected without my or your permission having been asked for or given.
So, is it worth it to you to swap personal financial information in exchange for a limited boost in your FICO credit score? The answer, not surprisingly, is it depends. It depends on what your individual financial and/or credit situation is; It depends on how willing you are to voluntarily offer up more of your personal financial information in exchange for a limited boost in your FICO® Score.
For me personally, having spent many years working to build and maintain a near perfect FICO® Score, neither of these programs offers any benefit, and I am not willing or comfortable voluntarily giving permission to any company to view any more of my financial affairs than I absolutely have to in navigating the financial world we live in.