News from Wall Street Journal reporter Anna Maria Andriotis this week tells us that the major credit reporting companies will soon be adding data from consumers’ utility and phone bill paying history to their credit reports. This is a move that she says will likely boost the credit scores of millions of people and increase traditional loan approvals. According to Andriotis, Experian will start factoring in this payment information early next year.
Consumers who have low or no scores because they have no history of borrowing and subprime borrowers whose scores are currently lower than what some lenders require will likely see their credit scores go up.
Some of these changes are coming about because of pressure the banks themselves have placed on the credit reporting industry and its regulators because they want to make more loans.
To make this work, people will have to opt into the new program and link the bank accounts they use to pay their phone and utility bills to Experian, allowing the company to track their monthly payments.
The credit score shows a borrower’s ability to responsibly use and pay off credit cards and loans, and in the future other types of bills.
The five factors that are most important in determining a credit score according to Thad Merrill are
an individual’s payment history,
the amount of outstanding balances,
length of credit history,
the types of accounts, and
the number of recent credit inquiries.
Factoring in utility and phone bill payment histories will help with at least the length of credit history.
If you are interested in borrowing for real estate investment, hard money lenders offer alternatives to those who have bad credit. They can also offer faster access to financing with less stringent eligibility requirements. However, investors may pay a higher interest rate over a shorter period. Hard money lenders are semi-institutional lenders who are not required to adhere to the policies and regulations that are required of banks. These requirements really tightened up after the 2008 financial crisis. If traditional lenders are looking to lend more money, it might be because they think the good economy “still has room to run.”
Good economy or bad economy, it is always a good idea to improve your credit score, particularly if you want to invest in real estate. A good credit score opens up more financing options and will speed up the loan approval process, and you won’t miss out on that great deal.
Reference: Andriotis, AnnaMaria, WSJ December 18th, Want a Better Credit Score? Soon, Your Cellphone Bill Could Help.