Fair Issac, the company behind the FICO score that lenders use to evaluate borrowers, is developing an alternative for people who have no credit scores— for instance, people who don’t use credit cards. The new score will draw on other data— like address histories provided by Lexis Nexis, to help measure stability— and other payment histories, like phone bills.
The inclusion of payment information for utility bills raises a question about traditional credit scores: why isn’t this kind of thing already baked in?
The answer is: utility companies often haven’t provided it to credit-reporting bureaus. They don’t need to— not the same way that credit-card companies do.
“Every service provider has a carrot and a stick,” says John Ulzheimer, president of consumer education for credit-sesame.com. “And the stick, almost across the board, is to shut off some kind of service that you need.”
A cell phone provider, for instance, can cut off phone service. Credit card companies have fewer options, says Ulzheimer: “Visa or MasterCard or American Express or Discover can’t come re-possess anything if you stop making payments.”
All they can do is rat you out to the credit bureaus as a deadbeat, so that kind of reporting is a core function for lenders.
Even when utilities want to report customer payment data, they often have to ask permission from state regulators, says Michael Turner, president of the Political and Economic Research Council.
Often, regulators turn them down. “When a utility company goes to a regulator and says, ‘Gee, we’d like to report our payment data to a credit bureau,’ they’re told ‘Hell, no,'” he says.
Regulators, says Turner, tend to misunderstand how the data will be used. “They think it’s all about junk mail and telemarketing,” he says. “And there are not a lot of people who are a fan of either of those.”