But traditional credit scoring models don't fully take into account some of the most basic bill-payment responsibilities of Americans, especially rent and utility bills.
In June a bipartisan bill in the U.S. House of Representative sponsored by Democrat Keith Ellison of Minnesota and Republican Michael Fitzpatrick of Pennsylvania proposed including some of those types of payments in consumer credit score calculations.
That bill, the Credit Access and Inclusion Act, seems to be gaining momentum in Congress, advocates say.According to a release from Ellison and Fitzpatrick, so-called invisible credit consumers are subject to higher interest rates when seeking loans and credit and may even be forced to turn to pawn shops or payday loans, both of which can offer skyrocketing interest rates, to get the cash they need to pay their bills -- especially those uncounted rental payments and utility and phone bills. According to WilliamPaid, which helps renters get payments applied to their credit history, 70% of U.S. apartment renters want their monthly home and utility payments to count toward their credit scores with no strings attached. That's where the Credit Access and Inclusion Act may turn the tide, advocates say. "The fact that it is in Congress is an important step by U.S. legislators to help millions and millions of Americans establish a payment history based on their recurring monthly expenses without having to take on debt," says Jeff Golding, chief executive at WilliamPaid. The bill could be particularly useful to younger consumers, who typically have trouble establishing credit. "As with most 20-somethings, the only check they write is typically for rent," he says. credit scores. "The most important thing is understanding credit scores and what impacts them," Golding explains. "Building a credit history takes time. If you don't have a solid financial history, you have to be especially careful not to overdraw your accounts or bounce checks. These actions will show potential lenders that you are not creditworthy." Most importantly, he says, if you rent an apartment, make sure you pay your rent and utilities in full and on time. While momentum builds for the CAIA to pass Congress, "invisible" credit consumers can set the stage for a healthier financial future by paying bills on time and avoiding payday loan and pawn shop interest rates. That's a good plan for the short term as 50 million Americans wait for help from Washington to leverage their long-term credit strategies.