Heads Up: Full-file Credit Reporting

A lot of people are probably vaguely aware that credit scores have become increasingly important in recent years. Access to credit is fairly critical for most families, as one of the big trends of the past 30 years has been families swapping in their savings habits for access to credit. That’s a trend that has its own problems, but there are times when you have to deal with the world that you live in, and that’s a world where credit reporting matters a great deal.

The current system is set up so that late payments factor heavily into the calculation of your credit score, but on-time payments aren’t included. Also, if you don’t take on debt or potential debt through a credit card, you’re likely to not have a file that can be scored. Tens of millions of Americans don’t have a credit score at all, and some good proportion of those folks are being penalized for a series of rational, responsible choices to avoid taking on debt in the first place, others are stuck in a sort of nebulous world where their good behavior isn’t rewarded but their “bad” or “unlucky” behavior hurts them significantly.

For a number of years now, some have encouraged an approach that would allow energy and utility companies the option to report all payments to the credit reporting agencies, including information about on-time payments. We’ve supported this approach, believing that this “full-file reporting” would increase accuracy of credit scores and generally improving access. Now there’s a bill that would do that, H.R. 6363, The Credit Access and Inclusion Act supported primarily by Rep. Jim Renacci (R-OH) and Rep. Keith Ellison (D-MN), would allow “full-file reporting.” The leading advocates for this change have been the Policy and Economic Research Council (PERC). PERC has published research arguing that this change would be benefical for low-income Americans, allowing many to repair bad credit and opening avenues to credit building for more.

This isn’t a totally uncontroversial idea, experts from the National Consumer Law Center (with whom we’ve often worked and agreed in the past) argue that the bill is going to have more ill effects than good.

That is why Congress has hearings and examines evidence before passing legislation. Lo and behold, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit is having just such a hearing at 2pm today, “Examining the Uses of Consumer Credit” is going to take a hard look at full-file reporting. PERC and NCLC are both testifying, along with a number of other experts. We’re looking forward to the hearing, and a good discussion about the potential positives and negatives of this approach.