With the creation of new tools, artificial intelligence, or AI, can now be used to conduct research, translate words into other languages and even manage your finances. According to a recent survey from BadCredit.org, 25% of participants say AI could help them improve their credit scores. Younger consumers are more likely to be early adopters of the technology, with nearly 40% believing it could be useful for this purpose.
But how exactly can AI help your credit score soar? U.S. News spoke with multiple experts (and ran a few tests) to help answer that question.
[Read: Best Credit Cards for Bad Credit.]
What Is AI?
“A.I. is a ‘catch-all’ term for a range of computer systems and software designed to simulate human thought processes, such as processing and analyzing information and even learning to complete or automate tasks for us,” says Ryan Duitch, CEO of Arro, a fintech company specializing in credit-building. “The term covers machine learning and natural language processing to empower computers to imitate our behavior for decision-making and understanding information.
“Within personal finance, AI integration is becoming more widely used as it becomes more advanced at identifying and analyzing data, predicting market trends, and offering guidance. It can also automate our tasks like budgeting and paying bills on time, streamlining money management into an easier and faster process,” he adds.
Plus, AI learns and adapts with use. That means it should continue to become more accurate and reliable over time.
How Can AI Help You Check Your Credit Score?
While generative AI chatbot ChatGPT can’t provide your actual credit score, it can tell you where to find it. We asked GPT-4 — the newest version of the language model — “Where can I get my credit score?” and it gave useful, factual information.
The system advised that we may be able to check our credit score via:
— Our bank or credit card issuer.
— An online personal finance platform.
— A tool from one of the credit bureaus. (Experian offers free FICO scores.)
AI also informed us that we might be able to request our score from a lender when we apply for new credit.
[Read: Best Credit Cards.]
Can AI Give You Advice About Your Credit Score?
Gerri Detweiler, former education director for Nav, a business credit and financing resource, says: “AI may be able to help you understand options for repairing your credit. I ran several common questions through ChatGPT-4, and the suggestions it gave were pretty good. None were completely out of line in terms of the types of suggestions I’d make.”
Detweiler says she asked the tool:
— What credit utilization percentage to target.
— How to improve your credit if you can’t qualify for a credit card.
— How to handle an account in collection.
— Where to find the statute of limitations on debt collection.
However, while Detweiler was reasonably satisfied with the results of her experiment, she still has some concerns about relying on ChatGPT for guidance. “If you get bad advice, you probably won’t know it. There’s a lot of bad advice floating around about credit repair, and people often believe it. AI tools may pick up on some of that advice,” she says.
Plus, Detweiler adds, “You may not know fully how to implement that advice. I asked about the statute of limitations and the advice it gave about how to research that was fine, but you’d still have to try to figure that out and understand how it applies specifically to your situation.”
Finally, “Many people who hire a credit repair firm are overwhelmed by the process or are looking for a quick fix. If that’s you, you may not find it as helpful as you’d hoped,” she says.
While ChatGPT offers general information about building and managing credit, other AI tools take it a step further, providing advice tailored to your situation. “AI has the ability to offer guidance regarding your credit score by analyzing your habits and credit history,” says Duitch. “By examining your credit information, AI can pinpoint trends, patterns and elements that influence your score and suggest ways to enhance it. This advice may involve recommendations, like bill payments, debt reduction or responsible account management.”
However, Leslie Tayne, debt relief attorney at Tayne Law Group, says, “These recommendations should be taken with a grain of salt since they’re also designed to help the personal finance companies make money and increase their customer base.”
Since there are an increasing number of AI-based credit building and repair methods on the market, it’s important to research your options carefully before granting your trust.
How to Dispute Errors on Your Credit Report Using AI
Detweiler says you can ask AI to help you write a letter disputing an item on your credit report. “The example letter ChatGPT gave me was straightforward,” she says.
Several AI tools can also handle the entire dispute process for you. These tools analyze your credit report and identify items to challenge. Then, the AI generates the required letters to send to the credit bureaus.
You may be able to try the software for free. However, you’ll likely have to pay a one-time or monthly fee for ongoing or full use.
Can AI Increase Your Chances of Credit Acceptance?
“AI has the potential to enhance the way credit evaluations are conducted, increasing approval rates for applicants — those who may not have been well served by traditional credit scoring methods,” says Duitch. “AI has the ability to achieve this by utilizing information in decision-making, enhancing risk assessment techniques, customizing credit offers and enhancing fraud detection measures.”
Creditors and third-party companies are using AI to help individuals who want to get credit identify the loans or credit cards they are more likely to get approved for, says Detweiler. “You may already be using this technology when you use third-party sites to find offers or when you get preapproved online by a lender or card issuer before you apply,” she adds.
“That doesn’t necessarily mean they’ll match you with the most cost-effective credit products, though. Always do your due diligence before opening a new account and apply for credit sparingly,” says Tayne.
[READ: Best Credit Cards for Beginners]
Alternatives to AI That Help You Improve Your Credit Score
If you prefer to boost your credit score using more low-tech strategies, follow these expert tips.
Always pay your bills on time. “A great way to do that is to set your credit card to auto pay. That way, you never miss a payment, and that boosts your payment history portion of your credit score, which is the largest portion of your score, making up 35% of it,” says Leland Gross, certified financial planner and founder of PeaceLink Financial Planning.
Be upfront with creditors if you’re struggling. “Some creditors have programs that may be able to help, but the only way to know what options are available to you is by keeping the lines of communication open,” says Markia Brown, accredited financial counselor and creator of The Money Plug, an online service that provides specialized financial counseling.
Pay down your debt balances. “Credit utilization is a smaller part of your credit score than on-time payments, (but reducing) it is the fastest way to boost your score. (One) way to achieve that is to request a credit line increase, as long as you don’t then go and use the increased credit,” says Kelley C. Long, certified financial planner and host of the “Financial Bliss with Kelley Long” podcast.
Keep your accounts open (when possible). “Do not close lines of credit less than 2 years old. Length of credit history makes up 15% of your credit score,” says Gross.
Maintain a mix of credit types. “Don’t just have a credit card,” Gross advises. “Have utilities in your name, a mortgage, etc. Take this with a grain of salt — don’t just take out lines of credit to boost your score.”
Open new credit thoughtfully. “Take your time. If you are opening a lot of lines of credit, it could look like you are in a desperate pinch for cash, and that could flag you as a high-risk borrower,” says Gross.
According to John Ulzheimer, a credit expert formerly with FICO and the credit bureau Equifax, the bottom line is this: “The most effective way to improve your score is to avoid doing the things that indicate you’re an elevated credit risk and, hence, lead to lower scores. Missing payments, defaulting, running up large balances that are too close to your credit limits on your credit cards, having too many cards with balances … these are the things that will drive your score into the ground. If you can avoid these things, then you’re well on your way to improving your score.”
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Can AI Help You Improve Your Credit Score? originally appeared on usnews.com
