How the Credit Bureaus Try to Be More Inclusive

NEW YORK (Credit.com) — Many consumers these days may be in a better position to handle various lines of credit than at this time last year, but that might not necessarily be reflected in their credit ratings, which can pose major problems for those who seek financing.

As a consequence, many companies involved in consumer finance are looking for ways to bring more borrowers into the fold, according to a report from The Wall Street Journal. Some credit scoring agencies such as TransUnion and FICO have been using data not directly related to consumers’ credit as part of their attempts to determine creditworthiness, and others are beginning to incorporate more information along these lines.

Equifax and Experian recently developed and launched metrics that keep tabs on far more accounts, including rent, cable, utilities, cellphone and other bill payments that may better show a person’s ability to afford lines of credit, the report said. Further, American Express recently began tracking the account management habits of some of its prepaid cardholders and could use that information to determine whether they can qualify for one of the company’s various charge accounts.

Further, a Republican U.S. Representative from Ohio recently introduced a bill that would update the federal Fair Credit Reporting Act to include some of this data, the report said. If passed, the law would require lenders to consider rent and other payments when determining credit eligibility.

Some financial experts say these practices might actually do some consumers more harm than good, the report said. This is because many people with lower incomes may have to prioritize certain bills over others and may not always be able to cover their various expenses at the end of the month. As such, their credit rating would suffer despite the fact the bills they missed intentionally were not related to their credit.

There are millions of Americans who live outside the credit system for long periods for various reasons, whether that means they simply cannot afford such an account or had their credit so badly damaged during the recent recession that they have yet to repair their standing.

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