Do you know how your credit score is determined? Many Americans don't

Most Americans don't know what exactly goes into their credit scores. 

Many people assume that rental payments factor into their credit scores- in fact, about half of those surveyed in a recent study said so. And even more think the same of other transactions that aren't recorded in traditional credit scores. For example, 53 percent believe that their cable and internet payments are a factor, 54 percent think that utilities contribute to their credit score and 52 percent are under the impression that cell phone bills count in their credit scores. For comparison, only 29 percent of individuals named mortgage data as a contributor to their credit scores. 

Using alternative data for credit scores
About 50 million customers don't have access to credit because their transactional history isn't packed with the sort of data that credit scoring software such as FICO use in order to determine scores, Bankrate explained. 

"One of the problems for people who don't have good FICO scores is the collection of enough positive data to make the score an effective predictive tool," Tena Friery, research director of the Privacy Rights Clearinghouse, told the publication. 

For the most part credit agencies take into account things such as student loans, mortgages, credit card debt and auto loans in order to determine credit scores, according to Housing Wire. However, attitudes on credit scoring are beginning to change. Soon lenders may begin taking rent payments into account. 

Most consumers report paying their rent on time, but they don't know that the transactions are not factoring into their credit scores. Individuals should be aware of what data is being used to determine their credit scores, and what isn't. They should also know that rent payments are becoming an increasingly popular way to determine peoples' creditworthiness. 

While the FICO score is the most used, there are a number of scoring models that determine consumers' financial responsibility based on a variety of transactions not utilized by the traditional agencies, such as FICO. 

For example, PRBC, which stands for Payment Reporting Builds Credit, uses a multitude of payments in order to score individuals, Bankrate noted. Consumers can build their score through transactions such as rent payments, phone bills and utilities transactions. 

A study that examined the transactional data of 20,000 people found that 11 percent had thin credit scores, which means that their credit reports didn't consist of the kind of data utilized by FICO, according to Housing Wire. This makes it difficult for those individuals to acquire loans.

However, when rent is factored in, consumers' credit scores jump into a territory lenders are okay with. When rental payments are included, 59 percent of the individuals had credit scores considered prime. Only 3 percent of the people surveyed had credit scores considered subprime. When payments such as rent and utilities are utilized, more borrowers are able to get the loans they need because their credit scores bump up significantly. 

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