Home > Credit Score > Can Alternative Credit Scores Hurt You?

Comments 0 Comments

We’ve written quite a bit on alternative credit scores at Credit.com over the years — and on how these non-traditional scores based on things like utility and rent payments can help consumers with “thin” credit files qualify for credit cards and loans. But can the opposite also be true? Can people who have healthy “traditional” credit scores be stymied by the use of alternative scores?

There’s emerging evidence that it is, in fact, possible.

A recent article in the Los Angeles Times recounts the experience of one such man, Joseph, who applied for a travel rewards card through Bank of America only to be rejected because of the bank’s use of an alternative credit score product called Credit Optics from SageStream.

Now, keep in mind that Joseph told the Times that his traditional credit score from FICO is an 820. That’s an excellent score based on FICO’s scale of 300-850 (learn more about what counts as a good credit scores here). And Joseph told the Times that his debt-to-income ratio is below 20%, which you might already know means he carries very little debt based on his ability to repay. While FICO doesn’t measure debt-to-income, the amount of debt you’re carrying compared to your total credit availability is a critical part of your FICO score.

Joseph’s alternative score through Credit Optics was a 374 on a wide scale of 1 to 999, which, a company representative reportedly told the Times was a “pretty good” score. But it wasn’t good enough for Bank of America to approve his request for a new credit card. (Bank of America did not immediately respond to Credit.com’s request for comment.)

The rest of the details around Joseph’s rejection aren’t clear, but it begs the question: Can it happen to you? The short answer is yes.

It Could Happen to You

“When alternative credit data first started to be used, the idea was that this was going to fill in thin files for people who didn’t have a lot of credit history with traditional financial products,” said Thomas Bright, a writer with Clearpoint Credit Counseling Solutions. “That was the idea early on, and this looks like more of a trend toward using these scores for even the traditional consumer who has a positive traditional credit history. That’s a new trend that brings a whole new set of concerns.”

Specifically, those concerns revolve around not knowing what information will be used to make up your alternative credit scores. It could be your utility bills, your rent — essentially every single bill you might receive. Bills for not returning library books on time. Or even your driving and arrest records, as some alternative scores include information from public records. Nearly anything could be fair game when it comes to determining your creditworthiness.

“It really comes down to transparency,” Bright said. “When you look at FICO, it’s very clear. There are five categories that make up your score, and then it’s one step from there to figure out how you can influence these five categories. And then you can really take your destiny into your own hands and shape your credit score and credit profile. But when we talk about alternative data, that’s not possible for most people because … it’s not clear how much alternative data there is on them, and they don’t have access to see it.”

What You Can Do

Broader use of alternative scores in conjunction with traditional credit scores means you’ll need to make certain you make timely payments on every financial commitment you have to avoid any blemishes that could negatively impact you, Bright said. You’ll also need to appear stable, so having direct deposit from your employer can be helpful, as can moving infrequently.

Setting up auto-pay for your monthly bills can help ensure you don’t miss or make a late payment. Also, avoiding overdrafts on your bank accounts can also help because some alternative data takes that information into account when determining your credit score.

If you’re ever denied credit, it’s good to review the denial to find out what credit reporting agency the financial institution used. If it’s one of the big three agencies, it’s a good idea to pull your credit reports, which you can do for free every year at AnnualCreditReport.com. You can then begin to clean up any blemishes and improve your credit scores. Likewise, if you see errors on your reports, you can dispute those errors so they are removed.

If you were denied because of a report issued by an alternative credit scoring company, you can contact them and see if they will explain to you what is included in their calculations so you can attempt to dispute, correct or mitigate that data. But that could be easier said than done.

[CREDIT REPAIR HELP: If you need help fixing your credit but don’t want to go it alone, our partner, Lexington Law, can manage the credit repair process for you. Learn more about them here or call them at (844)-346-3295 for a free consultation.]

Image: PeopleImages

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team