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Should credit reports include utility bills?

October 19, 2012

The New York Times recently provided readers with an interesting discussion of the pros and cons of listing utility payments on credit reports.  The Times indicates that right now, most utilities do not furnish account data to the credit reporting agencies unless a consumer has fallen so far behind on payments that the utility has written off the account and turned it over to collections.

Because almost everyone has one or more utility accounts, listing the status of these accounts on all credit reports would provide a fuller picture of many consumers’ financial situation.  In particular, people who don’t have any debt have blank credit reports, which can make it difficult for them to borrow money when they wish to do so.  If utility bills were included on everyone’s credit report, people without debt would have some kind of credit score (based on whether they paid their utility bills on time or not), which might enable them to get credit when they wished.

Then again, it might not.  The Times suggests that many people who have no debt, but who do have utility bills, often pay those bills late.  If so, adding utility bills to credit reports would not help them get credit:  it would hinder them from doing so, because their only “credit” history would be a largely negative one.

The issue in the background here is whether the credit reporting agencies and other participants in the retail credit market should take affirmative steps to try and bring people who don’t have any credit accounts into the market for credit accounts.  Several years ago, Fannie Mae and Freddie Mac, as part of their mandate to help low-income and minority individuals buy homes, encouraged the credit reporting agencies to create special credit reports for people who didn’t have credit:  these reports used letters from local businesses, who had given someone an item on layaway or on informal credit, to establish a kind of credit score that might enable some people to take out mortgages and buy their first home.  Defaults on these mortgages spurred lawsuits and posed the question of whether Fannie and Freddie should have encouraged these “special” reports in the first instance.  One could ask the same question about credit scores based on utility bills.

One final note:  the Times doesn’t mention this, but people who sign up for a “budget plan” with a utility are more likely to see that utility bill appear on their credit reports.  A consumer who starts a budget plan with a gas company in November may agree to pay $100 per month year round.  This consumer would therefore pay $100 per month in December and January, when gas bills might reach $200 per month, and continue to pay $100 per month in June and July, when gas bills might be $0 or close to it.  The utility would in essence be extending credit in the winter months to be repaid in the summer months, and it would therefore be more likely to list the “budget plan” account on a credit reporting agency’s credit report.

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