If you’ve been struggling to build or repair your credit score, there are some changes in the works that may make things easier for you.
On Monday, the three largest providers of credit-reporting information announced an agreement to change the way they handle data on your credit report. Going forward, consumers may see fewer negative entries added to their credit reports from secondary sources such as medical bills and collections for noncontractual payment agreements (e.g., traffic fines).
The credit bureaus also plan to reinforce higher-reporting standards across the board.
But that isn’t the only modernized way to beef up a credit history. Two studies recently conducted by Experian found a way to capitalize on a previously untapped source of positive payment history: those rent and utility payment checks we write each month.
The utility of paying your utilities (and rent!)
In the past, paying your rent and utility bills on time did nothing for your credit report or credit score, leaving many consumers out in the cold.
“For many Americans, financial exclusion is a reality,” said Emily Christiansen, director of Experian RentBureau. She pointed out that even though many of these Americans consistently meet their financial obligations, they have little to no credit history because they operate primarily on a cash basis, which shuts them out of mainstream financial services products.
To see what impact including this information would have on consumers, Experian added payment history for a select group with thin or no-credit profiles.
According to Experian’s Let There Be Light study, adding positive utility payments yielded the following results:
- A nearly 50% drop in subprime consumers with credit scores between 300 and 600
- A 54% increase in consumers considered nonprime with credit scores between 601 and 660
- A 15% increase in those with credit scores over 661, generally considered prime
When positive rent payment information was added, the number of consumers designated as subprime dropped nearly 20%, according to Experian’s Credit For Renting study.
The study also found adding rental payments helped consumers with limited credit history. Before the study was conducted, 11% of the renters had no credit file or score. After the information was added, those renters were considered scorable and able to start building on their positive credit histories.
So, that means you have to actually pay on time
There is a caveat to adding new information: Once landlords and utility companies are reporting monthly, consumers’ credit scores could also take a hit if they pay late or miss payments.
But the good may still outweigh the potential downside, said Chris Magnotti, strategic analytic consultant for Experian. Namely, people with no credit history will still be able to build their tradelines and develop a credit score.
Now, go get your report updated
Not all landlords and utility companies have plans to report payment histories. There are currently 750 property management companies reporting data to Experian RentBureau, according to Christiansen.
But even if yours isn’t, you may still be able to get the information to appear on your credit report.
Christiansen suggests directing your landlord to Experian RentBureau’s website, where both property management companies and private landlords can sign up to start reporting data.
If that doesn’t work, the renter can also sign up through a rent payment service working with Experian RentBureau. These services allow for the payment and collection of rent electronically, and renters have the ability to opt in to reporting their rental payment history to Experian RentBureau.
Getting your utilities to report may take some follow-through. Typically, a utility company will report your payment history if requested, but the company may report only once. If you want your information reported more often, you may have to make the request again.
But when you’re trying to get out of the credit doghouse, a short phone call might just be worth the extra effort.