Study, House bill highlight role of rent, utility payments in credit scores

Dive Brief:

Alternative credit data such as rent and monthly bill payments would be added to credit reports in a House bill that lawmakers and industry experts discussed at a hearing Thursday. A similar bill that passed the House in June 2018 aimed to help lower-income households build a credit history.
Including too much data without context could unnecessarily damage people's credit, consumer advocates warned. "We don't want to penalize tenants who invoke their right to withhold rent over poor conditions," said Chi Chi Wu, an attorney with the National Consumer Law Center. Reporting 30- or 60-day late payments to gas or electric utilities may also cause undue harm, she said.
The hearing came on the same day FinRegLab released a study determining that the amount of money flowing in and out of customer accounts each month can help predict creditworthiness. The nonprofit examined six nonbank lenders — Kabbage, Petal, LendUp, Brigit, Accion and Oportun — that use cash-flow data in their underwriting. The study doesn't reflect all Americans or platforms, but it could help companies like Kabbage or Upstart show alternative data's worth over a model that relies on FICO scores and credit bureau information.

Dive Insight:

"In the era of renting, and Venmo and Uber ... we need to give the next generation of consumers the ability to build a stronger credit file through nontraditional data sources," Rep. Josh Gottheimer, D-NJ, the bill's sponsor, said Thursday.

However, Wu said the consumer should have the final say over which data is shared in the report. "If they want to share their bank account data, if they want to share their utility payment or rent payment data, they should be permitted to," Wu said. "But if they don’t want to, and they want to say 'Hands off my data,' that also should be respected."

Upstart CEO Dave Girouard said in prepared testimony Thursday that his company’s model approves 27% more consumers for loans and lowers their interest rates by 3.57 percentage points compared with lending models that use a FICO score.

Studies like FinRegLab's could give a measure of comfort to regulators and bankers who may be reluctant to make changes in underwriting out of fear they'll fail to comply with established standards.

The bill has bipartisan support. Rep. Patrick McHenry, R-NC, said he thinks the benefits of including additional data in consumers' reports outweigh the risks.

"When we are talking about getting unbanked or credit-invisible people and making them visible, I think that is a proper societal tradeoff in order to get more people into the world of being banked."