Reporting On-Time Payments Low Cost and Easy Way to Improve Credit Access
The Huffington Post column, "Alternative Credit Reporting: Is Experian Really Going to Help You Rebuild Your Credit?", inaccurately describes the extensive research and proven impact of full-file reporting of utility and telecom data. The authors conflate utility and telecom payment data -- which has extensive research and practice demonstrating positive benefits -- with rental payments that is new data and lacks the same analysis and demonstration.
Limited access to mainstream credit is a national problem. An estimated 70 million Americans are financially excluded not because of a bad credit history, but owing to a lack of sufficient credit history to generate a credit score. They spend more than $4 billion in fees on credit from high priced lenders.
Current reporting by utilities creates a late list. Nearly everyone's 30-day late payments of utility and telecom data are reported to the National Consumer Telecom and Utility Exchange operated by Equifax. Additionally, many companies report late payments to the big three credit bureaus at various points, 30, 60, 90 days and again when turned over to a collections agency.
The question is how to reward the on-time payers who pay their credit-like bills (water, electric, gas, phone)?
Extensive research of eight million payment files demonstrates that reporting utility and telecom payments help families access appropriate and affordable credit. Reporting on-time payments along with the already reported late payments helps low-income households achieve a credit score and greater access to credit. This dramatically increases access to affordable sources of mainstream credit according to research by the Political and Economic Research Council (PERC):
- Twenty two percent of Hispanics and 21% of African Americans who otherwise would have been rejected, were accepted for mainstream offers of credit.
- Twenty one percent of those who earn $20,000 or less annually who otherwise would have been rejected, were accepted for mainstream offers of credit.
- Fourteen percent of those 25 or younger and 14% of those 66 or older, who would have otherwise been rejected, were accepted for mainstream offers of credit -- showing benefits for both younger and older generations.
In addition, both experience and rigorous empirical research has shown that fully reporting non-financial payment obligations like a telephone or utility bill to a national credit bureau does not result in those who are new to credit becoming overextended. In fact, those who receive mainstream credit because of alternative data reporting have been shown to be more credit responsible than the general population over time.
The column further misstates two key points:
- Credit scores should be accurate not pristine. If a family can afford groceries or their electric bill, but not both, then they shouldn't be able to secure a mortgage loan, auto loan or any other form of credit that they cannot afford. Not everyone can afford credit at all times. Thus, reporting late payments actually serves to protect consumers from accessing credit they cannot afford and suffering subsequent adverse consequences such as collections, liens and bankruptcy.
The flip side is that when families do find solid footing, and can afford both groceries and electric bills, then their credit file reflects that fact and they will then be able to access mainstream credit they can afford.
Having only negative data, as is the case for most furnishers, is far less beneficial to lower income consumers and the credit underserved as it effectively prevents them from entering the credit mainstream.
- Strong support for utility and telecom payment full-file reporting. The PERC, Prosperity Now and the Center for Financial Services Innovation recruited nearly 70 local and national organizations to the Alternative Data Coalition. Our goal is to provide affirmative regulatory permission to greatly increase credit access for millions of Americans, ensuring that creditworthy individuals have access to affordable mainstream credit. Privacy organizations are supportive as they realize it enables individuals to catch and prevent identity theft sooner.
Only the National Consumer Law Center and one of its affiliated organizations has publicly raised concerns about the effect of full-file reporting on late-paying utility customers only. They have not shown any data linking late payment to any consumer harm.
Rather than reverting to fear tactics—such as suggesting that people will starve if their utility payment data is fully reported to a credit bureau—those few opponents of this initiative would do well to consider the facts. Indeed, at the Credit and Collections Annual Conference in Orlando, FL on March 2nd, 2011, Jed Nosal of the Massachusetts Attorney General's office—who had been opposed to full file reporting of energy utility payment data before being exposed to the PERC research findings—afterward remarked that advocates opposing this should do their homework better and that he wanted to learn more about this issue for his state's citizens.
At this time of limited access to credit and budget deficits, implementing affirmative permission for full-file reporting of non-financial telecom and utility payment data to national Fair Credit Reporting Act-regulated credit bureaus costs the government nothing and increases accuracy of credit scores. It is a consumer-friendly approach that empowers consumers with control of access of information, gives them recourse in the event of an adverse action, and represents the apex of data privacy and security.
Carol Wayman, Prosperity Now
Michael Turner, PERC