About 45 million US adults have no credit scores, according to a study released in early May by the Consumer Financial Protection Bureau. This is a big deal. Lenders rely on three-digit credit scores to determine who gets credit and at what interest rate. Consumers without credit scores will struggle to qualify for a mortgage loan, auto loan, or even a credit card.
There is good news on the way: It might soon be easier for consumers to build a credit score. That's because the national credit bureaus are beginning to count additional forms of payment as part of consumers' credit histories.
Rental History Can Build Credit
Consumers typically build a positive credit history — and a strong credit score — by paying their credit cards, mortgage loans, student loans, and auto loans on time. But historically, the credit bureaus didn't track on-time rent, utility, cable, or cell-phone payments. Consumers who never missed a rent or utility payment, then, often found themselves with no credit because they weren't paying off mortgage loans, credit cards or auto loans.
The national credit bureaus, though, are making changes. Experian and TransUnion — two of the three national bureaus, with Equifax being the third — are now collecting on-time rent payment data as part of their credit profiles. Consumers who always pay their apartment rents on time now have the opportunity to build a credit score from these two credit bureaus.
Both bureaus are working with RentTrac, a service that allows tenants across the nation to pay their apartment rents online. Renters who pay through RentTrac can then have their payment data sent to TransUnion and Equifax.
This is a big move for consumers. Emily Christiansen, director of Experian's RentBureau, said that the credit bureau recently conducted a study of the impact of adding rental information. A total of 11% of the study participants did not have a credit score before Experian began counting on-time rent payments. Once Experian did start collecting this information? Nearly 97% of this group gained enough of a payment history to build a credit score.
Christiansen also said that participants who already had a credit score saw their scores rise by an average of 29 points.
That, too, is important. Lenders consider a FICO credit score of 740 or higher to be an excellent score. Consumers with the highest scores qualify for the greatest number of loan programs and the lowest interest rates.
"Consumers are often surprised that these other payments are not reported," Christiansen said. "It seems like such a no-brainer that this information should be reported."
More Changes to Come?
The bureaus still do not count on-time utility, cable, and cell-phone payments. On-time payments to doctors and hospitals aren't counted, either. But Christiansen said that there is growing support for counting at least some of these payments.
"We are in strong support of full-file reporting," she said. "We don't want to just have the times when consumers don't pay their utility bills to show up in their credit reports. We also want the times they do pay them on time to show up."
This is an important point. Paying your doctor bill on time won't help your credit score. But not paying it might hurt it. If your medical provider sends a collection agency after you for non-payment, that will cause your credit score to drop.
The lesson? Pay all your bills on time, even if doing so won't boost your three-digit score.
"The face of credit is changing," Christiansen said. "What will be included in your credit report is changing. That is exciting. I am very optimistic that we will continue to see more types of payment information included in the reports."