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Utilities, rent on credit reports?

By Steve Bucci · Bankrate.com
Monday, December 9, 2013
Posted: 3 pm ET

The "Credit Access and Inclusion Act" is currently before Congress. If passed, this bill would allow non-loan accounts to be included on credit reports. For some consumers, the inclusion of payment histories on accounts, such as rental payments and utility accounts like cable and electricity bills would bolster their credit reports. The hoped-for result is enough information to create credit scores for the millions of consumers who do not have a credit score under the current industry standards.

When I heard about the act, my first reaction was concern including non-credit accounts because -- well, they aren't really credit! Let's take rental payments as an example. No credit is extended. Rent is paid in advance each month. If you are going to report cash rental payments, wouldn't weekly purchases at the local Piggly Wiggly qualify to be considered as well? You are paying for your groceries in advance and then consuming them, just as you are paying in advance to live in your apartment for the next month.

Utility payments are paid after the service is rendered, so in the broad sense, utilities could be considered extending credit. But to me, utilities still shouldn't be considered credit, as the companies see it as charging for service once it has been delivered.

For those consumers that make on-time payments every month, adding those accounts to a credit report may make sense. But what about those consumers who don't pay on time every time? Currently, late rent and utility payments don't show up on credit reports unless the account has been turned over for collection. With this new bill, consumers who make the occasional late rent or utility payment could have negative information added to their credit reports. For those consumers this bill is attempting to help, late payments on their credit reports would be worse than no credit accounts appearing.

Several industry studies have been published on the efficacy of using alternative data to allow more "no file" or "thin file" consumers to have all the benefits of credit in their lives.

I asked FICO where it stood on this issue. Its answer was that using rental data has not been proven to be predictive to their satisfaction -- yet. However, they are continuing to study alternative data to determine what is predictive. Apparently, a major factor in their equation is that the rental and utility information is not consistently reported to the bureaus, nor is it available in all areas across the country.

When I hear that the data are inconsistent and not nationally available, I have to give pause. Five or so years ago, policymakers and regulators got together to allow mortgages to be issued to consumers using non-traditional underwriting criteria. We didn't like the outcome of the housing crisis that followed.

A question I have is who will pay for including rent and utility payments on credit reports? Credit bureaus charge to report information. Who will ultimately pay for reporting these non-loan accounts? I believe the ability to access credit for all consumers is worth exploring, but I'm not sure that this bill is the answer.

What do you think?

 

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4 Comments
Jordan
March 21, 2014 at 3:18 pm

I think that the way that credit scores are used today are absolutely outrageously out of the scope of credit. For those of us who do not rely on credit (which should be seen as a huge positive indicator of financial responsibility), our credit scores are terrible, which should not effect us, right? But this is simply not the case anymore. For auto insurance prices, rental prices and deposits, apartment prices and deposits, applying for jobs, utility plans/rates/deposits, cell phone plans/rates, and for just about every other major transaction, your credit report and score are a major influence. The fact is, the activities that you believe should not be included, are already included in credit reports, but only the delinquent accounts! There is nothing positive to balance this out. It is like judging a company that you know nothing about, except that it had 50 complaints from customers on the BBB website, without knowing how many customers it serves. If it is a mom-and-pop store, then there is a big problem, but if it is a corporation like Wal-Mart, then their customer service must be exemplary. Without only this fragment of knowledge, they may decide not to do business with a great company. But we are not just talking effecting loan rates. We are talking about effecting things that everyone is required to have, like health insurance, whether or not they borrow money. The only reason that these companies do not report good behavior, but only report delinquent accounts, is because they do not care that they help provide you with an accurate report. It takes time, money, and manpower to compile and submit these records, and why should they put in the extra effort if they already know your credit history? If these companies are using your credit report, then they should either be calculating the risk that you will fail to pay what you owe them (which is necessarily debt, which is credit), and should therefore report your information, or they have no business looking at your credit history at all. Also, one does not pay for rent before each term (month) of rental. It is usually billed almost a month after that term of the rental has expired, which is exactly how credit cards are billed. The only difference is that the balance each month is variable for credit cards, and (usually) fixed for a lease.

Jean
December 11, 2013 at 12:56 pm

The comparison of supermarket spending to rent payments is not valid - one does not have a contract with the supermarket to pay a certain amount on a certain date each month. That said, I can say that as a landlord of three rental properties, I am certainly not going to pay a credit reporting agency for the "privilege" of filing reports with them. My concern is that landlords would have incentive to file reports only in cases where tenants are late on rent, and trnsnts who pay on time would syill have no information on a credit report.

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