While the proposed new FICO 10T and Vantage 4.0 credit scoring models aim to address the issue of inclusivity by incorporating alternative data sources such as rental and utility bill payments, they may inadvertently create new challenges for Americans who are already struggling to make ends meet.
According to the National Energy Assistance Directors Association (NEADA), roughly 20 million households in the U.S. - one out of six homes - are behind on their utility bills, with US households owing about $16 billion in late energy bills, double the pre-pandemic total. Similarly, 15% of renters - or 8.4 million Americans - were not current on their rent payments, and roughly 20% of Americans making $34,999 or less per year reported they weren’t caught up on payments.
Incorporating rental and utility bill data into credit scoring models may have unintended consequences for those who are already struggling to make ends meet. Rather than providing a more accurate reflection of an individual's creditworthiness, these alternative data sources may actually penalize those who are behind on their bills, further exacerbating financial stress and potentially leading to more evictions and financial instability.
At My Credit Guy, our job is to empower consumers to take control of their credit, no matter which scoring model is being used, so they can achieve the best score possible. Through our program and education, we can help determine what's impacting your score and how you can take the steps necessary to improve your credit and use the knowledge we can provide to maximize your score. Give us a call at 866-726-7339 for more information or submit your contact information here and a team member will reach out: https://www.mycreditguy.com/help.