Credit Score

Should Utility Payments be Reported to the Credit Reporting Agencies?

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Most consumers are aware that how they manage “standard” credit obligations — such as mortgage, automobile and student loans as well as credit cards — are recorded in their credit histories at the three major national credit reporting agencies (Equifax, Experian, TransUnion). This information is then accessed and used by lenders when evaluating a person’s application for credit.

But what about alternative credit — how you manage your utility obligations (energy utilities, telecommunications, media, etc.), for example? Should this information be reported to the national credit reporting agencies as well? Is this really credit? Some would position so — arguing the entity is providing the consumer with access to the service (like cable TV) before the consumer has actually paid for it when the bill comes due at the end of the month.

What you may not know is that derogatory late payment information associated with these “utility oriented services” is sometimes already being reported directly or indirectly (via collection agencies) to the credit reporting agencies and that negative information can negatively impact credit scores or be considered by the lender when evaluating the request for credit. What is not common practice is the consistent reporting of positive timely payments with utility type obligations made by the overwhelming majority of consumers.

The full reporting of this information would provide a more complete picture on a consumer’s ability to manage their credit (both traditional and utility combined). In addition, the full reporting of this information has the potential to help a lot of consumers gain entry into our “main stream” credit system as it would help consumers with limited to no traditional credit histories establish credit with the reporting of these utility tradelines, as well as potentially deepen their overall credit profiles. Consumers with thicker files who pay as agreed tend to have higher scores, holding all else constant.

Entities opposed to the reporting of utility payment information express concerns that the reporting of missed payments could have negative impacts on lower income and elderly consumers who may periodically skip payments on their utility type bills when experience cash flow challenges.

Another consideration is related to the utility companies themselves. If they start to report information to the credit reporting agencies, they would need to create internal processes to facilitate the consumer dispute investigation procedures. This represents an additional operating cost for them. In addition, many of the utility companies have to adhere to state level rules and regulations that would need review and potential revision if they even wanted to start reporting.

For additional information, several research papers on this subject can be found at perc.net. PERC researchers design and implement a variety of economic impact analyses including focus on U.S. consumer credit issues.

Image: Derrick Coetzee, via Flickr

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  • http://www.eCredable.com Steve Ely

    Many companies have proven this information is extremely useful in predicting credit risk. FICO released the Expansion Score in 2007, which uses Alternative Data (like rent, utilities, and insurance) to evaluate risk. Experian recently released Extended View, which provides similar capability. Equifax has a product called Decision 360, which allows lenders to have a broader view of your risk profile, which leverages this same data. CoreLogic collaborated with FICO to develop the Core Score which uses this kind of data as well, with a particular focus on mortgages.

    There is plenty of evidence this information is extremely useful, which is why eCredable uses this same information to help the millions of people without a traditional credit history prove their creditworthiness to a potential lender.

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  • pussycat

    Can the credit companies look at bank account status and (look for over drawns, deposit history, etc) and base decisions on that as well?

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