Build credit scores without debt

Needing to have at least four lines of credit to generate a score has left as many as 50 million of our brothers, mothers, neighbors and friends currently labeled as ‘unscoreable.’ These ‘credit-invisible’ borrowers may rely on high cost payday loans or pawn shops and also pay more for automobile insurance, renters’ insurance and even rent without access to an increasingly important line of credit.

This week, we introduced a bill to enable Americans to build a more accurate credit score- and in doing so increase their quality of life. The Credit Access and Inclusion Act clarifies that utility and telecom companies may report their customers’ on-time payments to credit reporting agencies to establish a more complete report.  Currently most of these companies report only late payments, —that is, if they report at all— meaning consumers are missing out on the positive credit they could be building based solely off their current payments. This bill responds to regulatory uncertainty that has made firms concerned about adding on time reporting to the late reporting they may already do.

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In addition to addressing the concerns of ‘credit invisibles,’ our bill will helps people with credit scores but whose scores are lower than they should be.  By thickening their files with timely information, millions of consumers will see an increase in their scores- and with that an increase in their credit opportunities.  In addition, consumers who had a historic delinquency that will drag down their score for seven years, could be helped by having positive and more recent information giving a more balanced picture of their current finances.

Extensive research from the Policy Economic Research Council (PERC) finds that adding just one utility enables 74 percent of credit invisible customers to obtain credit scores. More accurate credit scores enable lenders to make more loans.

Including alternative payment history will benefit consumers across the demographic spectrum. For example, 15 percent of young people ages 18 to 25 move from having no credit score to being able to qualify for credit at prime—not subprime--rates.  This expanded reporting will do the same for 11 percent of adults over age 66, 15 percent of Latinos, 10 percent of African Americans, and 7 percent of renters. Approximately 55 percent of consumers who had suffered a bankruptcy or had very late payments saw their credit scores increase when a utility or telecom payment was included.

The prevalence of utility and telecom services as well as their ease in collection and reporting provides us with a simple and no-cost solution to help families build wealth and increase the types of investment that spur economic growth.

In passing this commonsense legislation America would catch up to the more than two dozen other nations that have embraced alternative data as an efficient and equitable approach to extend credit to increase families’ financial standing and to grow the economy.

Ellison represents Minnesota’s 5th congressional d in the House of Representatives and Fitzpatrick represents Pennsylvania’s 8th congressional district.  Both serve on the House Financial Services Committee.