Big news!!  Federal regulators and Congress are pressuring the major credit bureaus to adopt more inclusive scoring models into their systems and include non banking forms of credit.  They are proposing that items such as rent and utility payments be included in the formulas, not just mortgages, car loans, and revolving credit devices like credit cards. The goal of the proposed legislation is to expand the scope of the scoring system so that individuals and families that don’t use revolving credit as much can have a better opportunity to qualify for mortgages.

This reminds me of an aunt of mine who passed away and in her nineties and I was named Executor of her estate.  As suggested, I pulled her credit report to make sure she had no outstanding debts. Upon reviewing the report, I was startled to see that she had no credit score!!  Not a low score, but no score!!

Here was a woman who paid her bills the day after she received them.  So why no credit score??  After some analysis, I arrived at the answer.  She had advanced in age to the point where she no longer had a need for a mortgage or a car loan, and had cancelled her credit cards some years earlier because she used them so scarcely.

I then came to the realization that her credit report was no longer a reflection of her credit worthiness, but the absence of a credit relationship with financial institutions.  So as far as the credit bureaus were on concerned she had no credit worthiness, even though the opposite was true!!

Currently, the only time a utility bill or a rent payment appears on your credit report is when you are late.  Why? It costs money.  Posting what the industry calls a”trade line” on a credit report is expensive.  It is a major source of income for the three credit bureaus, all of whom are muti-billion dollar corporations. As a result, the only entities that can afford to continually post your trade information on your credit report are the major financial institutions and the credit card companies.

You may be able to see this for yourself.  If you “pull” your credit report from all three bureaus, you may see a ten to fifteen point difference in your credit score.  Why?? Let’s say you have a car loan with a local or regional bank.  In order to save money, your bank may report to only one or two bureaus rather than all three.  That’s why when you apply for a mortgage, the Federal Reserve requires the bank that is processing your application to pull your credit report from all three bureaus.

The bottom line?  There is no question that your credit score, which is supposed to be a reflection of your credit worthiness, is a myopic view based on your continuing relationship with the major financial institutions.  It looks like Congress may be working to expand the formula and make the system more inclusive.

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