Improving your credit score can take a long time and be a frustrating process. But a new study from credit bureau Experian suggests that one way to help people boost their credit would be to reflect their on-time utility payments on their credit histories.
Experian’s research concluded that including utility and rent payments on credit histories would improve scores for the majority of consumers, giving them the benefit of heftier credit files, longer credit histories, and higher credit scores. That could lead to lower interest rates, increased purchasing power, and better access to credit for many folks.
“We have seen that incorporating new data sources into credit files is a positive step for consumers,” said Experian’s Genevieve Juillard.
More than half of subprime consumers could benefit
Including on-time utility payments in credit reports resulted in a 50% drop in subprime credit scores (those between 300 and 600), according to the Experian study. There was also a 54% jump in people with credit scores between 601 and 660 and a 15% rise in credit scores over 661.
Utility payments, such as gas and electricity, are used by virtually every household in the United States, giving a wide range of consumers the opportunity to improve their credit scores by paying bills they pay every month, whether or not they have a credit card, a mortgage, a car payment, or another type of loan.
A lack of solid credit history can be a stumbling block for some people when they are trying to secure a mortgage or other line of credit. But sometimes, the lack of credit history does not reflect a person who is unlikely to pay back a debt. It may be that the person has just never had a credit card or loan, or hasn’t used credit enough to build a credit file. In this case, lenders may not be making a decision to extend or withhold credit based on accurate information.
A “thick” credit file is one that has five or more accounts reflected in it. A credit history with four or fewer accounts reflected is considered “thin” and may be rejected simply because of this. The Experian study showed that after including utility payments, the number of thick files rose by 9%.
Rent payments help too
Adding rent payments to credit files can benefit consumers as well. In their research, Experian simulated adding rent payments to credit history and saw 11% of renters go from having no credit file to having a credit score that reflected months of positive data for on-time rent payments.
“Positive rental payments should be viewed as significant as timely mortgage payments,” said Juillard.