The Democratic presidential candidate from California unveiled her plan last week during an appearance at the Essence Festival in New Orleans, an annual music and culture festival sponsored by Essence magazine.

Harris requested to amend the Fair Credit Reporting Act require credit reporting agencies to include rent payments, cell phone bills, and utilities when calculating credit scores.

It is estimated that there are 26 million people who are “invisible credit” and 19 million others who have “incorrigible” records, according to the Consumer Financial Protection Bureau. These people do not have enough bank or credit union accounts to have a credit rating by today’s standards.

While the traditional FICO score, named after Fair Isaac Corporation’s FICO,
+ 2.21%,
primarily considers payments on debts such as credit cards, mortgages and auto loans, credit scores have always been designed to account for telecommunications and utility payments since they were first published in 1989, said Joanne Gaskin, Vice President of Scores and Analysis at FICO. The latest version of the credit score, FICO Score 9, is also designed to integrate rent data.

The problem is that the necessary data has not been collected. FICO relies on consumer data collected by the three major credit reporting agencies (CRAs) – Experian EXPGY,
+ 0.40%,
Equifax EFX,
+ 1.93%
and TransUnion TRU,
+1.40%
– produce his scores for consumers. But these agencies don’t have a lot of this “alternative” data.

“Today we have a voluntary data provision system, which means not all providers report payment information to rating agencies,” Gaskin said. For example, while about 92% of American consumers own cell phones, only 5% of consumers have telecommunications data on their credit reports.

“We applaud Senator Harris’ proposal to responsibly expand access to credit through the use of alternative data such as telecommunications, utilities and rent payments and to draw more attention to the lack of this information reported to the three major rating agencies, “Gaskin added.

Read more:How redlining still harms house values

Legislation to amend the Fair Credit Reporting Act has already received bipartisan support. A bill introduced in 2017 by former House Representative Keith Ellison, a Democrat from Minnesota who would need this additional data in credit scoring managed to pass the House of Representatives. the Senate version of this bill, which was written by Sen. Tim Scott, a Republican from South Carolina, has attracted both Democratic and Republican co-sponsors, although Harris is not one of them.

Scott’s bill, which FICO supports, would also encourage telecommunications and utility companies and landlords to provide credit bureaus with information regarding on-time or late payments.

And the previous legislation that was enacted by President Trump included provisions to broaden the range of information lenders take into account when taking out mortgages. The 2018 bill that overturned Obama-era financial regulation required Fannie Mae FNMA,
+ 0.88%
and Freddie Mac FMCC,
+ 0.87%
accept loans that lenders have given using other forms of credit scores in the underwriting process.

Meanwhile, companies have developed alternative credit scores, such as the FICO XD, which rely on data from sources other than the major credit bureaus to assess the creditworthiness of consumers. Equifax, Experian, and TransUnion also developed the VantageScore as a competitor to FICO – while the score is based on the same data as traditional FICO scores, the data is weighted differently. Experian also has a tool that will include certain utility accounts included in your credit report.

Proponents of alternative credit scoring models argue that millions more Americans could borrow if their credit scores were calculated using additional data such as rent and utility payments.

Also see:More Americans are taking longer to pay off their credit card debt

However, others have argued that the added data alone may not be much of a game-changer in terms of creating a new pool of potential buyers. The 2018 legislation, for example, did not require lenders to completely abandon the traditional FICO score. As a result, some argued lenders may choose to ignore the alternative scores or, if they use them, view these borrowers as riskier and thus charge them a higher interest rate.

Others have also suggested that consumer credit scores could potentially go down if this extra data is seriously added to the calculations. For example, utility companies may already report late payments to credit bureaus, but usually only do so after several months. If utility companies were forced to report all consumer payment information to credit reporting agencies, consumers could be surveyed for a single late payment, even if they quickly resolved the situation.

Black and Hispanic consumers are more likely to be unrated or have no credit. About 15% of blacks and Hispanics are ‘invisible credit’, compared to 9% of whites and Asians, based on 2015 data of the Consumer Financial Protection Bureau.

This disparity contributes to the racial gap in homeownership, argued Harris. The homeownership rate for white Americans is 73.2%, while the rate for black Americans is only 41.1%, by the US Census Bureau.

She also offered to give $ 100 billion down payment and closing cost assistance – up to $ 25,000 per household – to help black families buy homes in areas of the country that were traditionally “branded.” of red ”, which means that people of color have historically been denied. mortgages to buy houses in these neighborhoods.

This story was updated on July 10, 2019.



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