Actor and activist Hill Harper, no stranger to offering advice on building financial security, is about to embark on a new venture with Experian to help consumers tap into some technology to instantly improve their credit scores.
The new idea, simply put: Give us access to your banking information to prove that you’re paying the electricity bill, the gas bill, the Internet bill and phone bills on time. Get a better, updated credit score. Have a stronger shot at getting lower rates on loans.
“Access to credit is a big piece of being financially healthy,” said Harper in a phone interview Monday from Seattle. Harper, who currently plays Dr. Marcus Andrews on ABC’s “The Good Doctor,” shoots that show in Vancouver, British Columbia.
Experian, one of the national credit bureaus, kicked off a new marketing campaign in Detroit on Wednesday called Boost America. The strategy is to reach out to more than 100 million consumers nationwide who don’t have many credit cards or loans, and as a result, may not qualify for attractive rewards or favorable interest rates.
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It’s a groundbreaking effort to address financial inclusion and help consumers, including some minorities and millennials, who don’t have a deep credit history and a strong mix of credit. The traditional way of doing things isn’t working for many of them.
As a result, the credit industry is trying new ideas and strategies for reaching out to consumers with “lighter credit footprints” who want to borrow money for a car, open a credit card or take out a mortgage.
It’s an innovative approach but consumers will need to grant permission for Experian Boost to connect to their online bank accounts to identify and access their utility and telecommunications payment history.
Boosting credit scores in Detroit
Harper, in Detroit for the launch, talked about credit over coffee at the Roasting Plant at 660 Woodward near Campus Martius Park on Wednesday. He’s willing to show consumers how the new Experian product works.
“I always love challenges,” Harper said. “What if we could boost the entire credit scores of the city?”
Locally, Harper’s agenda involved visiting some churches in Detroit’s neighborhoods and talking with some banking leaders, too, including Gary Torgow, chairman of Chemical Financial Corp. Harper is trying to schedule something with Dan Gilbert, founder and chairman of Quicken Loans, too.
Quicken Loans’ Capital Markets Executive Vice President Bill Banfield said this of Experian’s new product: “We appreciate the work Hill and Experian are doing to help Detroiters think more about how they can raise their credit score and improve their financial outlook.
“We are confident the home lending industry will take a look at well thought out innovations that help provide a fuller picture of consumers’ financial lives.”
Over the next few months, Harper will address credit management via blog posts and other speaking engagements. As part of the promotional efforts, consumers can engage with Harper during Experian’s Twitter #CreditChat from 3 p.m. to 4 p.m. May 15.
Consumers can visit www.experian.com/boost to sign up for a free membership. Remember, not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost. Results will vary.
To be able to use the service, consumers must use online banking and make the utility or telecommunications payments electronically from a checking or savings account. Thousands of banks can be easily connected. But some consumers will discover that not all credit unions or financial institutions are able to be connected at this point.
At minimum, Experian will be looking for at least three payments within six months for the same consumer and will go back two years to look at payments on utility and mobile phone bills. Experian looks at that information only, not other bank account data.
When the consumer verifies the data and confirms they want it added to their Experian credit file, an updated FICO Score is delivered in real time.
“It’s literally immediate,” Harper said. “That’s a real credit history of you paying your bills and that should be counted.”
Harper has long had an interest in financial literacy. He wrote a best-selling personal finance book in 2011 called “The Wealth Cure: Putting Money in its Place.”
Some readers called that book a “heartfelt approach to dealing with personal finance.”
Many times, Harper said, some people don’t even realize that they can take steps —such as paying bills on time — to boost their credit scores. It’s an issue that’s particularly important in cities like Detroit, too.
“The revitalization of Detroit is in full swing,” Harper said.
But it continues to be a tale of two cities, he said, where some longtime residents aren’t fully benefiting.
Detroit’s average FICO score is 608 — among the lowest for large cities, according to Experian. The “fair range” for credit scores is 580 to 669.
A credit score of 670 to 739 is considered to be good. Very good is in the 740 to 799 range. A score of 800 or higher is generally considered excellent.
Detroit has ranked near the bottom of average credit scores for many years.
Harper said part of his message is: “Hey, you’re not your credit score. But you can help control your credit score.”
“People think that somehow some magic things happen and a score is put upon them,” Harper said.
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Harper, who also was well known for a former role on the CBS TV drama “CSI: NY,” has celebrated Detroit’s revival by investing in the Roasting Plant Coffee in downtown Detroit, as well as renovating the Charles T. Fisher mansion in the city’s historic Boston Edison neighborhood of stately homes.
His “Manifest Your Destiny Foundation” serves youths from underserved communities.
How to save real money
Nudging those scores higher may mean moving into a different credit tier and saving real money.
Consider this example: A consumer with a FICO score of 720 will pay $4,020 less in interest than someone with a subprime score of 500 on the same $10,000 five-year car loan.
Not surprisingly, the lower your credit score, the better your odds for seeing solid improvements.
Experian rolled out its Boost program nationwide in March. So far, nearly two-thirds of consumers who completed the initial Boost process saw gains in their FICO score.
The consumer has some control and can remove the utility accounts that would hurt their credit history. A consumer cannot tinker with any late payment information relating to credit card or installment loans. It will take time and better payment practices ahead to reduce the impact on your score.
Experian said Boost’s potential impact is significant for consumers who have low or subprime credit scores and often face higher interest rates when trying to gain access to credit.
For those using Boost so far, the average score increase has been more than 13 points among those showing gains. About 13% of those consumers actually moved up into a better credit score category.
Harper noted that more than half of U.S. consumers have a low credit score, so the time is right for an education campaign.
Why credit scoring needs fixing
Lenders increasingly are recognizing that some millennials with good jobs have the capacity to take on new credit accounts. But the younger consumers simply haven’t done so because they’re hyper-focused on paying off all that student loan debt.
When they do want to borrow, though, they could face more hurdles.
Some consumers have a tough time getting credit cards with attractive rewards or car loans with low rates simply because they don’t have much of a credit history based on traditional scoring methods.
They might be infrequent users of credit or have a “thin file.”
A “thin file” is someone who has a limited credit history with typically three or fewer accounts.
A “thick file” is defined as someone who has an established credit history with four or more accounts.
Some lenders may exclude consumers with thin credit files; others may offer higher-cost subprime credit products.
The reason? Lenders view thick files as being less risky than thin files.
FICO, the developer of the FICO score, for example, is kicking off what’s called the FICO Ultra score, which can boost scores by importing data into your credit report from checking, banking, savings and money market accounts.
If you have some savings, maintain your bank accounts over time and avoid negative balances, you’d likely get a higher score.
The UltraFICO system — which involves a partnership with Experian — requires that the consumers opt in and link their banking accounts and use that information toward the score.
“By opting in, you could broaden your access to more lending options and better terms,” according to FICO.
John Ulzheimer, a credit expert who formerly worked for credit-scoring company FICO, said some consumers might have a hard time giving pretty intimate information about their deposit accounts, calling it a “tough pill to swallow.”
“I have tried Boost. My score went from 804 to 809,” Ulzheimer said.
But those with thin credit files or low credit scores may be more motivated to try to do what they can to boost their scores — especially if they see their scores improve.
“The consumer has total control over if and how long you want to participate in either Boost or Ultra,” Ulzheimer said.
Ulzheimer said he likes Boost better than Ultra because Boost actually allows customers to add information to one’s Experian credit report, where Ultra does not.
“That means any scoring model that considers utility-style accounts will benefit, not just the one or two versions of a FICO score,” Ulzheimer said.
Right now, both services are free to consumers.
The discussion itself, may give consumers more knowledge overall about their credit scores.
Earlier this year, a VantageScore study indicated that outdated conventional scoring models have led to an increase in marginalized consumers who face higher rates and more hurdles when applying for credit.
“Through no fault of the own, these consumers would fail to meet the requirements for automated underwriting processes widely used across the consumer lending system and could either be turned down for loans or face potentially unfair pricing and terms,” according to VantageScore Solutions.
Many of these consumers are creditworthy, even though they’re not traditional or active users of credit, said Jeff Richardson, vice president and group head of marketing and communications for VantageScore Solutions, a credit-scoring system created by the three major credit bureaus, Equifax, Experian and TransUnion.
But new data sources and technology are available and can enable industry participants to create tools to score those with “lighter credit footprints,” Richardson said.
“Lenders want to find the consumers that are hidden from plain sight,” Richardson said.
VantageScore’s data indicates that 17.2% of Michigan’s population would benefit from the new scoring model. Many of these consumers fail to meet the minimum scoring requirements of widely used conventional credit scoring models.
Other states that could benefit significantly include: Nevada (19%), Kentucky (19.7%), Arkansas (20.2%).
It’s, of course, increasingly costly to market to only high-scoring consumers. So new customers are valuable to lenders.
It’s also important to try new strategies, Richardson said, as millennials and GenZers are entering into the phase of their lives where they are seeking credit.
“They are a massive generation in terms of population size,” Richardson said. “They have previously been averse to credit, preferring instead to pay down student loans.”
As a result, many younger consumers don’t have a broad mix of credit or much credit history.
“Conventional scoring models penalize them for that,” Richardson said. “Lenders want to be able to champion these consumers so they are seeking new tools.”
Follow Susan Tompor on Twitter: @tompor