COSTA MESA, Calif.,
Feb. 25, 2015 /PRNewswire/
-- New research studies from Experian, the leading global
information services company, found that by adding on-time
alternative payment data to credit report files, millions of
consumers could gain access to basic financial services such as
loans and credit cards. These studies then analyzed the financial
benefits for consumers by adding positive, monthly utility or
rental payments to their credit reports and the subsequent effect
on their overall access to credit, credit scores and risk
profile.
Unlike credit cards and mortgages, on-time and regular utility
payments (with very few exceptions) are not included in an
individual's credit report. One of Experian's newest studies — and
the first it has published on this topic — titled Let there be
light, found that by including these tradelines,
consumers could potentially benefit by having higher credit scores,
lower interest rates, fuller credit histories and thicker credit
files.
"Experian is committed to helping people establish credit and
enhance their financial well-being," said Genevieve Juillard, president of Experian's
Consumer Information Services. "We have seen that incorporating new
data sources into credit files is a positive step for consumers,
and we're happy that the public and private sectors are recognizing
this with the Credit Access and Inclusion Act."
Credit scores
The Experian study found that by
including on-time utility payments in credit reports, there was
nearly a 50 percent drop in subprime consumers with credit scores*
between 300 and 600; a 54 percent increase in consumers considered
nonprime with credit scores between 601 and 660; and a 15 percent
increase in those with credit scores over 661, generally considered
prime.
"Since gas and electric services are used by just about every
household in the country, including these positive payments in
their credit files provides millions of Americans with a way to
build their credit history," said Juillard. The study also found
that by adding positive utility payments to their files, consumers
moving from subprime to prime could see a dramatic 50 percent drop
in interest rates. The lower the consumer's risk becomes, the lower
the modeled interest rate, which leads to lower-cost credit for
consumers.
"Many lenders require consumers to have thick files and clearly
adding rent and utility payments to consumer credit files can
improve their ability to access credit at reasonable rates," said
Barrett Burns, president and CEO of
credit score model developer VantageScore Solutions. "That's
only half of the equation. The credit scoring model that a
lender uses must be able to leverage this data and we knew early on
the predictive value of this information. That's why all
VantageScore models include this information in the calculation of
credit scores when it's present in a consumer's credit file. It's
certainly a win-win for consumers and lenders alike."
You can be too thin
The depth of a credit report
reflects the number and types of accounts on file, and a thin file
includes no more than four tradelines. Robust or diverse files show
that a consumer is able to handle multiple, monthly payments. After
including utility payments, the number of thick files (consumers
with five or more tradelines) increased 9 percent. For consumers in
the subprime risk segment who migrated from thin to thick file, the
study showed they experienced nearly a 10 percent drop in interest
rates compared with their thin-file counterparts in the subprime
category, who saw no change.
"While an individual's credit score is important, the thickness
of a credit file is also a critical factor in a lender's decision,"
said Chris Magnotti, strategic
analytic consultant for Experian. "An increase in the credit file
thickness alone, even with the risk segment remaining the same, can
yield benefits such as lower credit card interest rates."
Rental payments
Experian® was a pioneer and
the first credit reporting agency to incorporate on-time rental
payments in its database. In a separate study, entitled Credit
for renting, Experian looked at the effect of adding
positive rental housing payments to the credit report of
subsidized-housing residents.
Prior to the simulated rent reporting in the study, 11 percent
of these renters were considered no-hit, as they did not have a
credit file. As a result of adding the positive rental tradelines,
these same individuals now are scoreable and eight out of 10 of
these former no-hit individuals had more than 12 months of rental
payment history data in the Experian RentBureau database. These
residents now would receive credit for not just one positive
payment, but for months of responsible, on-time payments, and now
would be able to leverage the existence of a credit file and build
a credit history.
"Positive rental payments should be viewed as significant as
timely mortgage payments," Juillard added. "These individuals have
a strong payment record, but it's invisible to many companies
looking at their credit profiles. Without any record of on-time
payments, these individuals often pay a premium for services such
as utilities, cable and telecommunications and often higher
interest rates for other types of credit."
Subprime and nonprime
Consumers with subprime scores
between 300 and 600 typically receive fewer credit offers, higher
interest rates on loans and credit cards, and overall limited
access to credit. By adding rental data to their files, the number
of consumers designated as subprime dropped nearly 20 percent and
those in the nonprime risk segment increased by 92 percent.
"A recent college graduate who has limited credit history can
benefit by having alternative payments such as rent or utilities
included in his or her file, because it could bolster the report
enough so he or she could get a credit card, qualify for a loan or
take advantage of other credit opportunities," Magnotti added.
Methodology
In the utilities/energy sector, Experian
sampled a random set of consumers across the country who did not
have any current reported utility payments. For this study,
Experian looked at 25 months of positive payment history being
added into consumers' files prior to December 2013 and sourced the study sample from
its own database. The average monthly balance associated with these
positive payment obligations was approximately $114.
Experian's EIRC for RevolvingSM product was used to
model the credit card interest rate for the population of consumers
in the modeled interest rate study. EIRC for Revolving is an
estimated interest rate calculator for financial accounts that
carry revolving balances from month to month – like credit
cards. This product leverages historical credit card data to
determine key information, such as the average effective annual
percentage rates on a consumer's credit cards.
For rental payment data, Experian looked at nearly 20,000 leases
of subsidized-housing residents as reported by property management
companies to Experian RentBureau. The leases in the study were
added to the database as simulated tradelines. In many cases,
Experian included approximately 25 months of rental history for the
purpose of this analysis. Subsidized leases with negative rental
payment history were excluded from this analysis.
About Experian RentBureau
Experian®
RentBureau® is the largest and most widely used database
of rental payment information and currently includes information on
more than 13 million residents nationwide. Property management
companies and electronic rental payment processors report rental
payment data directly and automatically to Experian RentBureau
every 24 hours. This detailed rental payment information enables
organizations to make better informed decisions. Property
management companies utilize this data to screen new rental
applicants' payment history as part of their existing resident
screening services. Experian is the first major credit reporting
agency to incorporate positive rental payment data reported to
Experian RentBureau in consumer credit reports, enabling residents
to build credit history by paying rent responsibly.
About Experian
We are the leading global information
services company, providing data and analytical tools to our
clients around the world. We help businesses to manage credit risk,
prevent fraud, target marketing offers and automate decision
making. We also help people to check their credit report and credit
score, and protect against identity theft. In 2014, we were
named by Forbes magazine as one of the "World's Most
Innovative Companies."
We employ approximately 16,000 people in 39 countries and our
corporate headquarters are in Dublin,
Ireland, with operational headquarters in Nottingham, UK; California, US; and Sao Paulo, Brazil.
Experian plc is listed on the London Stock Exchange (EXPN) and
is a constituent of the FTSE 100 index. Total revenue for the year
ended March 31, 2014, was
US$4.8 billion.
To find out more about our company, please visit
http://www.experianplc.com or watch our documentary, "Inside
Experian."
Experian and the Experian marks used herein are trademarks or
registered trademarks of Experian Information Solutions, Inc. Other
product and company names mentioned herein are the property of
their respective owners. VantageScore® is a registered
trademark of VantageScore Solutions, LLC.
Contact:
Kristine Snyder
Experian Public Relations
1 714 830 5192
kristine.snyder@experian.com
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SOURCE Experian
