Have you been trying to build a credit rating from scratch? Or maybe you’ve been through a rough period financially, and now you’re trying to get your credit back on track. Either way, you already know how frustrating building (or rebuilding) credit can be. You’re being good, paying your bills on time. But so many of the bills you pay each month – your insurance, rent, utilities, cellphone – aren’t reported to the credit reporting agencies and, as a result, don’t help your credit scores. It doesn’t feel fair.
There’s a new service that’s trying to change that.
eCredable’s goal is to give consumers credit, so to speak, for the payments they make every month. To learn more, I interviewed Steve Ely, CEO of eCredable. Steve is a credit industry veteran, having worked at Equifax for 7 years, including as President of the direct-to-consumer business for almost 5 years. The interview has been condensed and edited for clarity, with some information added.
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Why is the current traditional credit system so frustrating for building credit from scratch?
Well you know, building credit just takes time. And I think a lot of people think that they can just get started and in a few months they’re going to have a really good credit history and a credit file that they can get a great credit score with, and then go get wonderful financial terms. And that’s really not just the case. Typically it’s going to take a year to two before you can create any kind of solid credit history that’s going to give you access to what’s called prime credit rates.
A lot of the things that we pay, the bills that we pay every month, Steve, don’t appear on traditional credit reports.
About 80% of the bills you pay every month don’t get reported to the national credit bureaus. Utilities, cellphone payments, insurance premiums, child care, anything you might on a regular basis that just doesn’t get reported to the credit bureaus. You might be doing really well at but you’re not going to get any credit for that.
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How does eCredable work? I’m sitting here, I’m someone who is renting a place, I have a cellphone, I’m making my car insurance payments every month, how does that turn into a potential credit rating for me?
We ask the customer to come to our website and enroll in eCredable. They tell us the bills that they’re actually currently paying, like the name of the landlord and utility company and the phone company and the insurance company.
We ask what’s the due date? What’s the amount you pay? When was the last day you paid that? Then we use that information to create a baseline of what your current credit rating looks like from an alternate credit perspective, rating people on a scale of A through F. We think that most consumers can relate to A to F much more easily.
Let’s say you start out as a C and you come in and you’ve been paying your bills on time and you only have a few months of credit history. Clearly you’d want to become an A, so our credit rating helps you understand where you are, and you get to use it to determine how long will it take you, and what you need to do to earn an A.
Once you’ve earned your A, that’s the time to get access to your credit report. Let’s say you want to go buy a car. Then you give us permission to act as your agent and get the payment information verified for you. We put it into a credit report and we put your final credit rating on it. Now you can take that rating and credit report and take it to any potential creditor to demonstrate just how credit-worthy you really are.
One of the questions I’ve gotten many times over the years is, “Why can’t I have my rent or my utility or my cellphone bills reported directly to the major credit reporting agencies?” Why is that?
Credit bureaus exist to help other businesses make decisions about you as a consumer. They don’t really exist to serve a consumer. In our model, consumers are in full control. They pick the bills they want to have reported on and they pick who they share the credit report with. No one can come in and say, “I want to see Gerri’s credit report.” We don’t allow that.
Once someone has started to supply information to eCredable and build their credit history, what happens when they actually want to get a loan?
There’s a little known clause [in the Equal Credit Opportunity Act] which gives you the right, any time you apply for credit, to present anything that demonstrates your credit-worthiness. The creditor is required by law to consider that information.
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They’re not required to change their underwriting policies, but nonetheless, this is an opportunity that most consumers just don’t know about. We’re trying to educate consumers about it and let them know they can use it to their advantage.
I did write about the clause in my first book, The Ultimate Credit Handbook, in 1993. But I didn’t know that your service was going to be coming along 15 years later to make it easier for people to do that. Right now that payment history is hard to prove. This is all in one place then? Do consumers subscribe to this service?
We charge $9.95 a month. We also charge them to verify each account in their file because this process is a manual process. We literally have to call the landlord, we call the utility company, we call the insurance company, and we get 2 years of your payment history to go into your credit report.
Wouldn’t someone just give you the good stuff and not the bad stuff?
That’s why we created the AMP Credit Rating. AMP stands for “All My Payments.” That rating works very much like a typical credit score where we take into account ALL the history that a consumer.
[In the AMP Credit Rating, we group things into 3 different categories of higher to lower value.
The most valuable payments are things like rent and utilities, which are monthly or bi-monthly. The second most valuable payments are less frequent but still recurring payments, like insurance. The third most valuable are more periodic payments like child care and health club memberships. We then rate the payments, with the most important rating factor being if you pay your bills on time.
The second most important rating factor the type of accounts you're paying. If you have things like rent, utilities, that's really good. However, if all your bills are lower-value items like child care or alimony or something like that, that doesn't count as much in our model. The third most important factor we look at is the age of the credit history.] If you only have 3 months in credit history that doesn’t count very much. But if you have 2 years, that counts quite a bit.
So, we take all that payment history, run it through the model, and put a rating on you from A through F. That allows the creditor to say, “Hey, this person showed up with an AMP credit report with an AMP credit rating of an A, I know that this information has been verified and they’ve been paying their bills on time for a long time.”
If someone signs up with eCredable today, can they supply information about payments they’ve been making for 2 years, or do you start monitoring from today going forward to build the credit history?
We look at 2 years in the past. The consumer doesn’t supply us with the payment information itself, they enter who they’re paying into our system but we do the verification. Since we’re a credit reporting agency, we can get that information verified on behalf of the consumer, put it in a credit report, and when the potential creditor sees it, they know this is good useful information.
[Related Article: Can You Establish a Great Credit Score... Fast?]
Who is your prime target?
18-25 year-olds and people who are just getting started building a credit history. We’re trying to help people to get across that bridge, to get access to the mainstream financial products. Right now it feels like there’s a moat surrounding those wonderful, affordable financial products.
To listen to the rest of the interview with Steve Ely, download the podcast below, or listen online. Simply right click the link below and either choose to save or play it. It is also available in iTunes here.
Podcast: A New Way to Establish Credit
Do you have a question about how eCredable can help you build credit? Ask it below!
Image: Perfecto Insecto, via Flickr