Building credit without credit

Published: Apr. 19, 2019 at 10:28 AM CDT
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Having good credit can open a lot of doors when it comes to buying a car or a house or starting you own business, but understanding it can be a difficult thing.

Jimmy Duran is a junior at Maize South. He's part of a group of students that run this store inside Reflection Ridge Retirement Community. It's a win win. Residents don't have to leave the home to pick up odds and ends and students like Jimmy learn about business and finance.

"If you want something, you have to work for it. You have to save your money and if that's something you really really want, you should be able to do that," Duran said.

According to math teacher Michelle Hilliard, Duran is on a good path to understanding his future finances, but when asked if he understands what credit is he replies...

"Uh, not really. We've learned about it but I'm not to the point that I fully know it."

He's not alone. A survey conducted by the Consumer Federation of America found just 41-percent of Americans understand what a credit score measures. For the answer to that, we turned to Meritrust Credit Union Director of Financial Education, Chris Wolgamott.

"A Credit score is a debt score, so you have to have accumulated some sort of a debt in order to have a score," he said.

But, according to the Consumer Financial Protection Bureau, close to 45 million adults have no credit score at all because they haven't done anything to earn one. No loans taken and paid, no credit cards used and paid off.

Services like Experian Boost and Ultra Fico say they can help you build credit without any of those things, but there is a catch: You have to give them access to your bank account. The companies say they'll then review and report on things like your average balance and your bill payment history. You'll then begin building credit even without using a credit card or paying off a loan.

In 2017, Equifax, one of the country's biggest credit reporting companies suffered a massive security breach putting the personal information of more than 145 million consumers at risk. So, is it safe to give a company, like Experian or Fico, access to you bank account?

"There's lots of danger associated with having your information online,' cyber-security expert William Matthews said. "Bank account info and credit card info. There are extra risks with that and accessing your account and being able to use, being able to directly access and use funds that might be in a bank account."

Matthews says if you provide information, like bank account info, to a company and that company gets hacked…it's just that much easier for criminals to gain access to your money. Even worse, those thieves can use that same info to not just steal you money, but also your identity.

"Having that information may allow someone to pose as you, to access information because various parties think that information is limited, so the person they're dealing with, if they know it, they trust that they're the actual person," he said.

Because it's tough to do business without providing some personal information, Matthews said you have may have to accept the risk, but you can still be smart about it.

"Do some searching. Searching news sites to discover if a business has had problems in the past. That's the first step. Don't deal with companies that you don't know or trust or haven't' done some level of diligence or investigation. Aside from that, there is no foolproof way."

Financial experts like Chris Wolgamott said Experian Boost and Ultrafico are just too new to know how well they work, but he says there are more traditional ways people can build or rebuild credit.

Wolgamott says to know your credit score and check your credit report once a year. He also says anyone wanting to build credit can do so by getting a credit card and paying it off on time for at least a year. He says the same can be done with a small loan.