10 June 2020 Concept Car
Ever since its introduction, Experian Boost has captured the collective imagination. We can’t say we’re surprised about that. Boost promises a lot, after all, and it won’t cost you a penny. On a market which has hardly budged over the past decade, this tool is finally shaking things up again. Some even consider it to possess revolutionary potential.
Is that hyperbole? Possibly. But one thing’s for sure: If you care about your credit score – and who doesn’t? – you need to know about Boost.
Experian Boost is a new application which integrates alternative credit data into your Experian credit rating. It has already been introduced to the American market, reportedly to great success.
Boost expands the data used for calculating your score. By activating Boost, utility bills will be included in your report. According to Experian, there is no danger of this leading to a reduction in score. On the other hand, there is a very good chance that it can add a few points to your account.
The effects of Boost are still hard to gauge. There are first indications that it can, indeed, lead to improvements. But most of them are moderate at best and only a tiny percentage will actually lead a rating to jump from ‘very poor’ to ‘poor’ or from ‘poor’ to ‘good’.
A few customer groups stand to benefit more than others:
If your score is very low or, conversely, rather high, if you haven’t been quite as reliable when it comes to your utility bills or if you have serious issues with your rating, Boost is not going to help you much.
Also, Boost …
Before you give Boost a try, you should be aware of the following potential issues:
All in all, Boost is an interesting tool. But you are ultimately better off trying to improve your credit rating through more long-term and more fundamental steps.
At Concept Car Credit, we talk to customers worried about their credit score every day. Many of them can’t wait for Experian to finally introduce Boost to the UK market. In this special and in-depth analysis, we investigate whether their hopes are justified.
We’ll explain how Boost works, who stands to benefit the most and if there are any potential dangers attached to the tool.
Would we recommend it? One thing’s for sure: Even if Boost does increase your credit rating, it won’t necessarily increase your chances of getting car finance. At CCC, for example, your rating hardly plays a role in accepting or rejecting a loan application.
If you want to find out more about how we can support you with car finance, give us a call at 0800 093 3385.
So why are so many in the UK so excited about Boost even though it’s not even available here?
Mainly because it has already been introduced in the USA, reportedly to huge success. This, at least, is what Experian themselves have said about public response to their innovation:
“More than 1.3 million people have completed the Experian Boost process. Of those, more than 844,000 have seen their credit scores increase in just a few minutes.”
That certainly doesn’t sound too shabby! First expert reviews, too, have been tentatively positive.
With this in mind, it seems only natural that UK customers would want the same benefits.
Essentially, Boost is a new feature which connects to your Experian account. It is completely voluntary, so you don’t have to use it unless you want to. And if you do decide to give it a try and don’t like the results, you can always undo the process and return to your default settings.
Essentially, the tool will update your profile with new information. Based on this updated information, Experian’s algorithm will re-calculate your score. If you’re lucky, the new rating will be higher than before.
Boost has been completely free for US customers. So if it does eventually arrive in the UK as well, chances are high that will be here, too.
The only thing you need to do is agree to the service’s terms and conditions. A few clicks later, your score will have gone from poor to fair.
Certainly, the benefits of the tool do sound a bit suspicious. But the more we get to know about it, the more we’re convinced that it’s perfectly legitimate. (Whether or not we’d actually recommend it is another thing, however.)
Essentially, the way it works is by including alternative credit data in your rating. So it would seem that the feature makes the entire rating scheme more expansive and, ultimately, more fair.
Essentially, a credit rating condenses your past payment behaviour into a single number. To do this, it uses various data points which indicate whether or not you’re a trustworthy borrower.
After collecting this data, the credit rating agencies will then weigh each individual point and arrive at a number. This number is your credit score and the higher it is, the more reliable you are from a lender’s point of view.
In principle and as long as the lender doesn’t rely on it exclusively, the credit score is a really helpful tool.
Many lenders often treat the credit score as though it’s ‘objective’ and expresses ‘facts’. Nothing could be further from the truth. In fact, the score is highly subjective.
To illustrate our point, here’s an example from the world of soccer. We hardly ever think about how the rules of the game influence which team comes up first. Imagine how different the table would look like if a match lasted not 90 minutes, but 60. Or if there were no intermission. Or if you could substitute the same player several times, just like in handball. And what if the playing field were just a few square feet smaller? We’re sure the outcome would be entirely different: Different rules favour different clubs!
The same applies with credit scores. If you include different data, your credit score will look very different – even though your financial situation hasn’t changed!
This is how Experian Boost works: By broadening the scope of the data used for calculating your rating, it creates an alternative result. A more inclusive credit score, so to speak.
So how much alternative credit data does Boost use? Given the ecstatic response to it, the answer may surprise you. Effectively, all the tool does is include utility bills. That’s it.
So, if you’ve always paid your electricity and water bills in time, you could see your score rise, since Experian will now consider these as well.
Of course, we’re not talking about huge sums here. Utility bills are usually rather moderate. Then again, the changes don’t always have to be huge to have an impact. Sometimes, even a few points more can lift you into a higher rating band, e.g. from ‘very poor’ to ‘poor’ or from ‘poor’ to ‘good’. In cases like this, Boost can be immensely useful.
On top of this, Experian Boost is generally well-thought-through
We have seen many supposedly smart software tools come along. On paper, they sounded like the best thing since bread came sliced. More than once, however, they have turned out to be rather frustrating in practise.
Boost, meanwhile, is not like that. In fact, it looks like a really well-thought-through concept with plenty of nice features.
Well, almost instantaneously. Boost does need to connect to your account first, after all. It will then integrate the data into your score. But unlike other processes, which take hours or even days to complete, this is a pleasantly fast and immediate experience.
Boost can also be turned on and off. If you find that you don’t like it, simply return to the default settings and carry on as usual. Or try it again at a later date to see if it is more useful to you then.
It is also very easy and intuitive to use. So far, there have been no complaints whatsoever from customers about the usability of the tool.
As mentioned, Experian has reported significant improvements for its users. Then again, it knows exactly how its algorithm works and would obviously never introduce a feature which doesn’t yield any results. Experian Boost works, because it’s a feature designed by Experian for Experian users.
The real question is how much you can expect to get out of the tool. Quite a few reviewers have taken on the challenge of getting to the bottom of that question.
Adriana Ocanas, writing for creditcards.com, experienced the biggest improvement: Her score went up by 44 points in just ten minutes!
Moneyunder30 saw only a minor improvement, but still rated the offer 9/10.
Similarly, The Wirecutter did think Boost was a good idea, although it didn’t actually help them in practise:
“When we tried the service, Experian identified two recurring utility charges: 12 months of electricity payments and three months of cell phone payments. There was no change to our initial Experian credit score of 691.”
Creditcards.us quoted David Shellenberger, vice president of scores and analytics at FICO, who said that he’d “seen as little as no boost to almost 40 points. Mine personally went up five points. There is certainly a chance someone can move from a poor credit risk to a slightly better credit risk. But people should be reasonable with their expectations. This isn’t going to turn a VantageScore 580 into a VantageScore 760.”
Boost is not entirely a black box, however. We do have some indications about who has the best chances of benefiting from the service:
Personal finance website Doughroller has also opined that young adults could benefit from Boost since they don’t yet have a track record. The question is whether adding just a bit of alternative credit data will be sufficient to really have an impact on an almost non-existent score.
Using a credit building card to work patiently towards a meaningful credit rating still seems like the best strategy to us.
We mentioned that those with an already high credit score will probably not see much improvement. And if you’ve not paid your utility bills in time, you can obviously not expect to get rewarded either.
In general, those with a low score stand to gain most. But if the score is too low, the boost will probably only be moderate. Utility bills will not be able to offset more serious ‘offenses’ in the past, such as defaulting on a loan or a private insolvency.
And then, there are plenty of reasons why Boost won’t, in fact, give you a lift which can not be fully explained. Surely, over time, we’ll arrive at a better understanding of the tool and the way it works.
This seems simple enough. So should you sign up?
Financial transactions are always delicate. They are probably even more delicate on the Internet, where the danger of abuse and identity theft is considerable.
When using Boost, you surrender certain volatile data to the rating agency. In fact, you’re allowing Experian to tap into your account and extract information from it.
It is hard to say, but probably not. First off, Experian uses 256-Bit SSL encryption, which is one of the highest standards in the business. And, as leading finance magazine Forbes points out, the service “can access only read-only data from a bank, and doesn’t have access to any of the funds.”
It is also unlikely that Experian, whose entire reputation relies on the integrity of its data, would pass or sell on the information to outsiders.
On the other hand, as we’ve seen more than enough in the past, hackers can pretty much get into any system. So by engaging Boost you’re opening another potential door into your volatile data.
Let’s not count the fact that Boost may not work for you. Although this is technically speaking correct, it doesn’t devalue the usefulness of the tool per se. Even if you see no increase, there is no damage done either. Plus, you can always try again another time in the future.
Let’s also not take into consideration the fact that Boost really only applies to your Experian score. After all, an improvement with one agency is definitely better than no improvement at all. Plus, some companies will only check Experian anyway. And for those who don’t use Experian at all, using Boost presents no disadvantage.
Finally, let’s not hold the fact that Boost is, as yet, pretty limited against it. Of course, it would make sense to also include rent payments. In fact, doing so would considerably increase its potential, as these payments are far higher and representative than the rather low utility bills.
But even if we disregard these aspects, there are nonetheless a few others which must be counted as problems.
If Boost can improve your credit score by including alternative credit data, you’d assume that it can, by the same logic, damage it as well. Interestingly, this is not the case.
As Experian has emphasised, any potential negative impact from the additional information has already been included in the original credit report. This seems perfectly logical: if you fail to pay any bill, this automatically affects your rating, after all. Utility bills are naturally included in this.
So does that mean that Boost is, in a way, the car finance world’s version of homoeopathy: Potentially helpful, but without serious side effects?
That would certainly be nice. But the sad truth is that Boost does have a few downsides. And they could negatively affect either you or the industry as a whole.
When potential future lenders take a look at your updated profile they will, yes, see an improved rating. But they can also see that it has been boosted. So it’s not a ‘silent’/’insibile’ process.
This need not be an issue per se. But it does mean that many lenders can and probably will discard the points you just gained, especially if they carry you over to a higher rating band.
Think of it this way: If the utility data really was so relevant, why wasn’t it included in the rating in the first place?
Lenders will still be able to see all your past payment issues.
Although this doesn’t automatically devalue Boost, it does have its negative implications. The mere fact that your score has shot up by a bit should never lead you to conclude that your problems have disappeared. If anything, it should inspire you to work harder on making even more meaningful improvements.
Here’s a serious underlying threat from Boost: If Boost is a free tool which everyone can use and if it serves to, as Experian has indicated, raise credit scores by a few points across the board, then doesn’t this simply mean that lenders will raise the bands by which to judge if a score is poor, fair or good?
This is not a hypothetical question. In fact, it is pretty much exactly what will most likely happen.
Things would have been different if Experian had included utility bills in all their ratings by default. By presenting them as an afterthought, they are leading lenders to conclude that a boosted score has been artificially increased.
Effectively, this means that
a) lenders will come to simply disregard boosted scores or
b) regard the Experian score as no longer being up to par.
Both options mean that even a 41 point boost is unlikely to leave much of an impression.
But here’s a thought. If only 30-40% of customers in the UK apply Boost, what would happen?
This scenario seems very likely, so even if you don’t think Boost is a great idea, you will probably have to deal with it and possibly use it against your will.
The mechanism is as follows: If you include your utility bills in the credit scoring model, then this raises the overall debt that’s considered, while leaving your income intact. Although your credit rating improves, your debt to income ratio gets worse!
Does this matter? It does if you’re looking to buy a house, for example. These loans are often based on your dti to a significant degree. And so, even a fairly small rise in your dti could reduce your chances of getting a mortgage.
That said, many lenders will understand that the rise in dti was down to the inclusion of utilities and disregard it. In fact, this specific problem is one of the reasons why utility bills were not included in credit ratings to begin with – because they can lead to unfavourable distortions.
All of which just means that the effects of Boost are real – both in a positive and a negative sense.
That said, Experian Boost is a nice idea and could improve your score within minutes. Whether or not it’s something that you or the rest of UK households should actually use remains to be seen.
But right now, it has shaken up the otherwise rather turgid and boring rating scene. And that’s not a bad thing by any means.
10 June 2020 Concept Car