Building Credit Without A Credit Card

Fair Isaac's FICO Expansion score bridges the gap between lenders and no-credit borrowers by assigning a credit rating to consumers who have little or no credit history.

Life is a series of tests. From those second grade spelling quizzes, to the mind-numbing SAT, to your production evaluations at work, someone's always tracking your performance. It isn't surprising, then, that Fair Isaac has come up with a way to rate your credit performance before you've even had a piece of plastic.

The no-credit dilemma

Building credit has always been a slow process. If you're a no-credit borrower, you know the dilemma: Lenders want to see a credit history before they'll give you access to their money-but you can't establish a credit history until a lender gives you credit. This is a veritable Catch 22.

Fair Isaac Corporation believes that it has an answer to the no-credit dilemma. It's called the FICO Expansion score, and it's a rating that's calculated without traditional credit bureau information. The alternative data sources used in the FICO Expansion formula include checking account records, payday loan histories, and rent-to-own accounts, among other things. Like the original FICO score, the FICO Expansion formula produces a number between 300 and 850, with a higher number indicating a greater level of creditworthiness.

Working your FICO Expansion

If you want to build a credit profile based on your FICO Expansion score, here are some tips to get you moving in the right direction:

• Don't bounce checks. Companies like ChexSystems maintain records on depositors who have a habit of bouncing checks. The traditional FICO score doesn't use this information, but the FICO Expansion score does. If you're designated as a repeat check bouncer, lenders will know, and they aren't likely to look kindly on your habits.
• Take your rent-to-own accounts seriously. You may not think of your rent-to-own accounts as debt, but you should treat them that way. Remember, the rent-to-own store can pick up the couch if you don't make your payment. But that's no reason to shirk your responsibility. Make your payments as scheduled; it's a necessary habit to develop.
• Don't use payday loans and rent-to-own accounts just for credit-building purposes. Payday loans and rent-to-own goods are expensive. You shouldn't put undue pressure on your budget just to build a FICO Expansion score. It may be less expensive for you to build a traditional FICO score instead, by way of a secured credit card or a gas card.

Building credit faster

If you're one of the 50 million Americans who has little or no credit history, the FICO Expansion score may allow you to build a credit profile more quickly. Lenders will benefit, too, because they'll have enough information to offer appropriate debt solutions to you and others who've never had credit. There's one caveat though: For the FICO Expansion score to help you, you must demonstrate responsible financial skills and earn that passing grade.