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.
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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.
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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 www.perc.net. PERC researchers design and implement a variety of economic impact analyses including focus on U.S. consumer credit issues.
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Image: Derrick Coetzee, via Flickr