One of the biggest complaints that many have about the credit reporting industry is the fact that consumers have little choice but to engage in activities that can result in high interest debt if they want a good credit score.
While it’s true that the point of credit scoring is to ascertain the way consumers use credit, the reality is that credit scores are being used for more than just loans. Now, credit scores are being used for non-loan transactions, including setting insurance premiums, the way landlords determine security deposits, and even the terms on which consumers can get Internet and cell phone service.
Since credit scoring is becoming a part of everyday finances, some consumer advocates believe it makes sense to include non-loan payments, such as utility payments, in credit scores. In order to move toward this goal, legislation has been introduced in Congress, designed to amend the Fair Credit Reporting Act.
H.R. 2538 and S. 1613
There are currently two bills addressing the issue of including utility payments in credit assessments, one in the House of Representative and one in the Senate. Both bills have been referred to committee, and there have reports on neither so far.
Both bills aim to amend the Fair Credit Reporting Act to allow for positive reporting of utilities in credit files. Right now, it’s possible for negative information to be reported, but positive information doesn’t affect the outcome of your credit situation. The Senate version of the bill is more comprehensive, but both would have the effect of making your regular telecommunications and utility payments reportable.
How This Bill Could Affect You
“The biggest benefit for consumers under the proposed bill is that utility and telcommunications companies will report positive consumer data to the reporting agencies,” says Xavier Epps, a personal finance expert and owner of XNE Financial Advising, LLC.
This positive data could impact a consumer’s credit score, and provide another measure of possible creditworthiness, without the need for a consumer to get a loan or use a credit card. For consumers that are wary of credit in general, but still want access to good rates on a mortgage, or who want to see savings reflected in their insurance premiums, this could be a step forward.
“The segment of consumers who have a relatively short credit history, but many years of living on their own, could see a bump in a credit score,” Epps says. “This segment includes consumers ranging in age from 21 to 30. This would allow them to receive credit and save money on interest payments.”
Because credit scores help set interest terms, being able to use positive utility and telecom payments could mean substantial savings on car loans and mortgages for consumers just starting out their lives.
“The only issue that would need addressing is the frequency of updates from various companies,” says Epps. “Consumers can quickly go from being on-time with payments to being a month or two past due. At this juncture, does the consumer experience volatile swings within their credit score?”
Harrine Freeman, CEO of H.E. Freeman Enterprises also sees some of the advantages associated with folding utility and telecom companies into the Fair Credit Reporting Act. “Companies will have to abide by federal consumer laws, and consumers will be able to file complaints against companies that violate this law,” she says.
However, there is the other side of the credit reporting coin to consider as well. “If accounts are paid on time, it will help to increase consumer credit scores,” Freeman says. However, if accounts aren’t paid on time, especially if the Senate version is passed, consumers could see some negative impacts.
“Currently, if a bill is not paid, service is terminated and consumers are not usually take to court for unpaid bills,” Freeman says. “If the bill is passed into law, companies will be able to take consumers to court.” It might even result in utilities and telecoms being included in bankruptcy proceedings, although that might be a stretch.
The Senate version of the bill could also move up the timetable for reporting late accounts. “Currently, if an unpaid utility or service bill is 30 to 90 days late, it may not be reported on your credit report. If the law is passed, companies will be more inclined to report utility or service bills 30 days late,” Freeman points out.
Will the Bill Be Passed?
Few bills actually make it out of committee, and even fewer are passed. Govtrack.us, a site that follows legislation, gives the Senate version of the bill a 3 percent chance of getting past committee, and a 1 percent chance of actually being enacted. The House version of the bill has a better chance, with a 27 percent chance of getting out of committee and a 7 percent chance of being enacted.
As with all things credit, including utilities and telecom payments in your report depends on how you handle your finances. If you make your payments on time and in full, you could benefit from the added boost this addition to the Fair Credit and Reporting Act would have. If you struggle to pay your bills, the addition of more companies to the mix would only drag you down faster.
If you are interested in influencing the progress of this legislation, you can contact your representatives. You can find them at Congress.gov. You can also contact the Federal Trade Commission to weigh in with your consumer concerns.