Virtually every household in America has it and pays for it, but never really gets the credit for doing so. I’m referring to your everyday utilities such as gas and electric.
The current situation is that many utility companies are reporting data to the credit bureaus, but most of them are reporting only the negative–meaning the accounts have been reported into collections. A very limited number are reporting the positive.
Millions of people pay these bills each month and pay them on time. This simple task could potentially be helping people build credit files and even deliver a positive increase when it comes to their credit scores.
At Experian, we believe there is a solution. We feel that widespread reporting of this data—which many refer to as alternative data–would be a hugely beneficial change for consumers, and could provide an opportunity for a large segment of the population to establish and/or build a credit file since these services are used by millions of households in the US. In fact, bipartisan legislation was introduced in the last session of Congress that Experian and many other organizations serving the consumer financial sector supported. It’s expected that the bill will be reintroduced in this Congress.
How do we know it helps? We recently conducted a study to show the benefits gained by having these payments reported into the credit file. Our study, Let there be light, provides a glimpse at how consumers could benefit from such a simple change. Combined with a previous study we conducted on the benefits of on-time rental payments, this study shows that by adding on-time alternative payment data to credit report files, millions of consumers could gain access to basic financial services such as loans and credit cards. Both studies analyzed the financial benefits for consumers by adding positive, monthly utility or rental payments to their credit reports and the subsequent effect on their overall access to credit, credit scores and risk profile.
Here are some of the key highlights of the utilities study:
- Twenty percent of those consumers with limited or no credit history (thin-file) migrated to the thick-file category, which means the result was a fuller credit history.
- 77 percent of the study population (those previously scoreable) experienced a score increase, the majority of which was 11 points or more.
- Twenty percent of consumers in the analysis received a “neutral” or ”no score change.”
- 97 percent of the study participants experienced a score increase or no score change as a result of positive energy-utility tradeline reporting.
- Overall, the average VantageScore 3.0 score change for all participants in the study was an increase of 28 points.
These results are promising and further reinforce how data can be used for good and can very often be the cornerstone of solutions to real life challenges that consumers face on a daily basis. Time.com, in fact, recently addressed this topic in its story, where it discussed the increased interest in alternative credit reporting, using data like electric bills, rental payments and even cell phone bills to help more people participate in mainstream finance opportunities.
We are committed to helping make a difference in the lives of consumers and the inclusion of utility, rental and alternative data in consumer credit files is positive step toward helping millions of consumers achieve greater inclusion and participation in mainstream financial services.