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?