On the heels of Fair Issac Corp. — the company behind FICO credit scores — proposing a new credit scoring system, a recent report pushes for a similar structure that would take into account telecommunication and utility payments.
Including this data “can enhance risk assessment of consumers who lack a credit history or credit score, as well as those who already have credit or a credit score,” according to Michael Turner, president and CEO of the Policy and Economic Research Council — a nonprofit policy researcher and author of the report.
As it applies to mortgages, the study finds that utility and telecom payment data is predictive of mortgage delinquencies. The report pointed to July 2009 to July 2010, when consumers without a delinquency on their utility/telecom accounts had a 7.5 percent mortgage delinquency rate.
“The evidence to date shows that nonfinancial bill payment behavior is associated with credit risk,” the report continues, adding that utility and telecom customers who pay their bills on time appear to have lower scores than they would if the payments were part of the reporting system. On the flip side, utility and telecom customers who pay very late are a higher risk than their traditional data-based credit scores indicate.
The Fair Issac-proposed scoring system would have the same 300 to 850 range, with telecommunications and utility bill data coming from the National Consumer Telecom & Utilities Exchange.
The new system would also take in account property record data, which would be provided by LexisNexis Risk Solutions. Under traditional FICO scoring methods, missed payments on utility and telecommunication bills can negatively impact a credit score, but on-time payments don’t translate on the three main credit reports.
The proposed system is currently in its pilot phase among 12 credit card companies. By year’s end, FICO expects to make the new score available to lenders.
Previously proposed amendments to the current scoring system have previously been shot down. In 2012, the National Consumer Law Center, during a House subcommittee hearing, reported that adding new reports to the credit reporting system could actually harm more consumers. When the issue came up in 2013, a coalition of consumer advocates opposed changing the system, stating that the reporting of utility bills would undermine protections implemented by utility commissions to protect customers when bills spike during weather extremes.
Other opponents to these proposals suggest that assessing a consumers’ creditworthiness on utility and telecom payments would have a negative effect on consumers struggling to make ends meet month to month.
Currently, the Consumer Financial Protection Bureau estimates that 19 million people have no credit score due to a lack of recent credit information or an insufficient credit history. Young adults, immigrants and those who shun credit cards make up the majority of this group.
