Utility Payments And Credit Scores

Credit scores affect many elements of a person’s life, and not just the obvious financial aspects, such as interest rates and loans. Employers often look at job applicant credit scores, as do landlords assessing potential tenants. Credit scores can also affect auto, home, and life insurance insurance rates, among other seemingly unrelated things. That makes credit rating quite important, even if you are not actively seeking a loan, mortgage, or credit card. So, when a credit scoring change, like including utility payments, is being considered, it is a big deal.

Some See Advantages To Including Utility Payments

The economic turmoil the nation has experienced since the bursting of the housing bubble and the mortgage and lending meltdown that took place in 2006 and 2007 has contributed to many consumers seeing their credit scores take a serious hit. Another common credit score woe is simply not having a credit or borrowing history. It takes having and using credit to earn a higher credit score. These types of credit score issues – the desire to build or rebuild a credit score – have led to a call to include other types of information in standard credit reports, such as utility payments.

Utility payments are not typically reported to credit agencies, except in cases where the bill is not paid and goes to a collection agency. That information reaches the credit report via the collections, not from the utility companies themselves. Those in favor of including utility payments on credit reports see this as a way to increase the flow of positive information onto the credit report, something that would benefit people that are trying to build a credit history or those that are trying to repair a damaged credit score.

This type of change would have to come legislatively, through Congress. That is because it would require an amendment to the Fair Credit Reporting Act, as explained in the New York Times on October 9, 2012. Decision would also have to be made about the specific type of utility payment information to be reported, such as whether or not it would be only on time payments reported to the credit reporting industry. Including late utility payment information to the credit reporting industry could reduce the potential credit score benefit of incorporating utility payment information in credit report data.

Caution Urged By Some Consumer Advocates

It is that potential negative impact that has some consumer advocate organizations urging caution and careful consideration before implementing such changes. According to those that focus on lower income consumers, including utility payment information on credit reports is likely to do more harm than good. That is because people on the lower economic tiers often struggle with utility bills, which consume a higher percentage of their income than those earning higher wages. And, when push comes to shove, as it often does during peak heat or cold, utility bills are paid late.

People get behind while using ready cash for day-to-day essentials, like food or fuel to get to work. They catch up, eventually, but if utility payments were a standard part of the credit report, it would be of little benefit to their credit scores. In fact, it would probably do more harm than good. People that don’t struggle periodically to pay utility bills on time are typically in a good enough financial position that they don’t need to have utility payments reported to improve their credit scores, according to some consumer advocate groups.

As It Stands Today

The policy debate is still on regarding the inclusion of utility payments as a standard part of the credit report. As it stands today, in all but a few states, utility payment information typically only makes it to the credit report in the case of nonpayment after transfer to a collection agency. Therefore, it is important to credit score health to avoid getting that far behind on utility bills or any other payment that can result in collection agency involvement. During times when it being late or behind is unavoidable, stay in communication with the company money is owed to. That can help prevent the debt from going to collections, mitigating potential credit score damage.

This article was contributed by Chase Sagum. You can read more of his contributed articles @ lexingtonlaw.com