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By Jeff Lazerson
What I think: Wow! Recently released Experian Boost credit tool that uses utility payments in its formula has increased Experian FICO scores more than 10 points, on average, according to a March press release. This can immediately pave the path to one’s mortgage credit approval and homeownership.
This may be perfect for financially responsible and homeownership ready, thin credit file individuals. Remember, one fine FICO point (619 to 620 for example) can mean the difference between loan approval and loan denial.
But this may be a double-edged sword.
For reasons that defy responsible lending and common sense, Experian Boost provides the same FICO score enabling opportunities for financial flakes (late and partial payers) who are simply not yet financially responsible to take on house payments.
Here’s how Experian Boost works.
You sign up for free via Experian’s website. You grant permission for Experian to connect to your online bank account to identify and track utility and phone bill payments (not rent payments).
“You need at least three months of payment history for a scoring calculation,” said Rod Griffin, Experian’s director of consumer education. “No activity for three means that account is removed. Up to 24 of past months can receive credit.”
Flaky bill payers can take advantage because this is sealed up like Swiss cheese. The payment made to the utility is tracked. Experian does not know if the payment is what is fully owed to the utility. Or, if it’s on time for that matter.
Does this reward late and delinquent payers with higher FICO scores?
“Boost accurately and positively captures credit behavior,” said Experian’s Griffin. “It’s not enabling people to qualify that shouldn’t.”
Take a mortgage payment in the regular credit report world. Ordinarily, you must make your full mortgage payment within 30 days of the due date. If you pay 15 days or even 29 days late, you might get hit with a 5% late charge, but no credit report dings. Partial payments are always considered late.
The key difference is Experian Boost doesn’t know if you are paying your utility bill in full or not. You could conceivably be paying $10 on a $100 bill. Until your account goes to collection, nobody knows you are a flake.
If flaky borrowers can get in via Experian Boost, and then they fail as homeowners, lenders may unfairly get blamed for making the Fannie Mae loan that should have never been.
Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or email@example.com.
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