A Bill on the floor of Congress proposes to amend the Fair Credit Reporting Act with respect to the responsibilities of furnishers of information to consumer reporting agencies. The Bill would change the way credit scores are calculated—to include non-loan payments such as rent, utility and cable bills. The Bill seems to be gaining momentum with the idea that it would be a way to help more Americans establish and improve their credit worthiness… however, some experts say that such reforms may end up hurting more consumers than it helps.
As you may or may not know, your credit score is currently determined by the information on your credit report, which is supplied mostly by lenders. The score favors those consumers who handle credit responsibly and in turn penalizes those who fail to make their payments on time or those who stay away from credit altogether.
“consumers who are faithful in making these payments on time will be compensated with a higher and better credit score,”
The new Bill makes the push to include borrowers’ payment histories on non-loan accounts like monthly rent bills or utilities. The folks who are in favor of this change say that consumers who are faithful in making these payments on time will be compensated with a higher and better credit score… which will allow them access to more affordable credit. If the Bill is enacted, providers would not be required to report this information, but would be permitted to if they so desired. A co-sponsor of the Bill, Congressman Keith Ellison, said: “Our current credit reporting system leaves more than 50 million people without a credit score…Including more data in credit reports will make it easier to get and improve a credit score.”
On the other side of this coin are the opponents who say that consumers are better off when credit bureaus don’t know too much about them. There is the argument that if a consumer has the number of accounts that get reported increased, there is even more of a chance that a mistake will be made and the consumer will be penalized. It is conceivable that if someone misses, or are just late, on say their electric bill, that their score will take a hit… whereas this would normally not happen.
The timing of this Bill is perilous as there is no time like the present where credit scores have been so important. With the tightening of lending requirements, the majority of lenders now require prospective borrowers to have a high credit score. Any consumer with a score under 700 often have a difficult time finding decent financing, especially for a mortgage.
There are however 50 million or so Americans that do not even have a credit score. Many of those who avoid credit or who are caught in that vicious circle of not having the credit history required to obtain credit… you need credit to get credit. This new Bill could, in theory, help out this type of consumer. Consider that many people pay rent, on time for years, and that payment history is never reported.
There is no doubt that the credit reporting system and how our credit scores are calculated, could use a change… I’m not sure that this is new Bill is the answer. I’m always cautious when more and more of our information is collected.