By Francis Creighton
According to the Federal Reserve, 63 million American adults are either unbanked or underbanked. Many rely on high-cost alternative financial products and services such as check cashing services or pawn shop loans.
Everyone agrees that we need to help more of these people access to fair and affordable credit, and for good reason. Increased financial inclusion means more people may have an opportunity to buy a house, potentially build generational wealth, and save more of their money. Far too many consumers with limited-to-no credit history are paying higher fees and incurring more financial burden to access products and resources.
And the truth is, financial services providers agree: lenders want to lend – that’s how they make money! We know that there are customers who could be successful borrowers – they are paying their rent, their cell phone bill, streaming service, gas and electric payments every month – but they may not have a mortgage, student loans or credit cards. So, while they are paying their bills each month, the bills that could potentially help to build credit simply don’t show up on their credit reports.
Lenders really want to find new customers who will be successful with their loans. And consumer reporting agencies want to help lenders more accurately assess consumers’ creditworthiness, particularly those without a credit history.
But unfortunately there are obstacles standing in our way.
Not enough landlords are reporting information. Some state laws block utility companies from reporting information.
And here’s the worst part: if a consumer doesn’t pay their bills, their accounts can go to a collection agency. And collections agencies usually report that negative information to consumer reporting agencies. Which means that consumers can see negative information from their rent and utilities show up on their report, but they don’t get credit for actually paying their bills on time.
We need to change the law so that utilities don’t face barriers to reporting information to consumer reporting agencies. We need the rental community to embrace reporting.
Making meaningful progress on these challenges and others requires policymakers, nonprofits and the private sector to all play a role.
Consumer reporting agencies are working to break down barriers to financial inclusion, including:
- Equifax began offering the industry’s first Spanish-language credit reports online and by mail in September to help the millions of Spanish-speakers in the U.S. better understand their credit profiles and enhance their financial well-being
- Experian Boost is a free tool that allows consumers to add on-time payments for services such as utilities, telecoms and even streaming services, directly into their Experian credit file for an opportunity to instantly increase their credit score
- TransUnion is partnering with Credit Builders Alliance to help those considered “credit invisible” or “credit disadvantaged”
Getting more information onto credit reports won’t solve the inclusion issue, but we can get closer by helping up to 63 million people access fair and affordable credit.
That would be a pretty good start.