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Tuesday, October 9, 2012

The Movement to Put Utility Payments on Credit Reports


It sounds like a good way to help consumers who lack full credit reports, or any credit report at all: Report their utility payments to credit bureaus, to help them develop credit files.

Currently, most gas and electric utilities don't report most consumer payments to credit bureaue. They typically report only extremely delinquent accounts that they have written off as uncollectable, rather than those that are merely late or those that are paid on time.

But proponents of full utility reporting argue that giving consumers credit for on-time payments can help them develop a credit file and a credit score, which can be key to economic advancement. Supporters include United States Representative Jim Renacci, who has co-sponsored a bill (H.R. 6363) that he says promotes reporting of on-time utility payments. “Those who have yet to gain credit should be able to use all of the tools available to them to establish their credit worthiness,” he said in a statement announcing the measure.

The problem, a group of consumer advocates say, is that broader reporting of utility payments to credit bureaus may actually hurt the records of lower-income consumers, who are more likely to pay bills like those for gas and electric service late as they struggle to make ends meet. The advocates, led by the National Consumer Law Center, outlined their concerns recently in testimony before Congress and in a letter to Mr. Renacci.

The concern, says John Howat, a lawyer with the consumer law center, is that there is a gap between the number of accounts that are just in arrears, but that are likely to eventually be paid, and those that are written off as not collectible. If those accounts that are simply late were to be reported too, they would likely have a negative effect on the consumer's credit.

“The number of accounts that are written off and stay disconnected is t iny, compared to the number where they're a little bit late,” he said, citing in part an analysis of publicly available utility data from the state of Iowa.

(While proponents of the bill argue that it gives credit for on-time payments, Mr. Howat says the bill's language, which would amend the Fair Credit Reporting Act, doesn't restrict the additional reporting to “positive” payments, but would allow reporting of late payments, too.)

Lower-income people, especially those in areas where bills fluctuate greatly from season to season, are more likely to get behind on their bills, Mr. Howat said. Most states have restrictions preventing utility shutoff for bills that are in arrears.

People in the Northeast, for instance, may fall behind in the winter, but then they catch up on payments when the weather warms and their monthly bills drop. “Particularly in households where there isn't enough income, for a whole range of reasons, to pay for necessities, the y may be a little bit late but they do ultimately catch up,” he said.

The center wouldn't oppose offering full utility reporting on an optional basis, he said. “If the objective is really to build credit histories for people who have no file, or thin files, let them opt in,” he said.

Would you opt-in to having all of your utility payments reported to credit bureaus? Do you think it would help or hurt your credit score?