Congress is currently considering legislation to require non-lender related spending like rent and utilities to be included in credit scores.  The action has spurred what promises to be a vigorous debate among consumer advocates, credit reporting agencies and lenders about the value that recurring payments add to or detract from a credit score.  Here’s a snapshot of the arguments:

Consumer advocates – Millions of consumers who have not yet developed a credit score are being denied access to better lending rates and other services.  They should ‘get credit’ for solid payment performance. (Advocates also concede that crossing all the t’s here won’t be easy in that today’s consumer slip ups, or late payments, are not reported now and would be with proposed legislation, but not necessarily with consistency.)

Credit reporting agencies – The potential for inaccuracies in reporting is great, which could actually hurt consumers more than help them, and separate databases exist already to track recurring payments.

Lenders – Government should tread carefully in defining parameters for payment reporting given that systems are not yet in place to weight the value of performance with recurring payments against performance with lender based debts.  A ‘be careful what you wish for’ scenario comes to mind.

Rental history already takes on-time payment performance into account and is included in scoring algorithms used by the major screening agencies in multifamily. The forward looking question is how non-lender service providers can benefit consumers by helping them to build credit by paying on time.  When it comes to rent, credit reporting firms now provide alternative payment data for residents who perform reliably.  Once reported, this data is built into an alternative score that lenders can evaluate in concert with a traditional FICO score.  Instead of more legislation from Washington, perhaps the focus should be on how to better integrate the data available without creating opportunity to discredit the very group additional reporting is intended to serve.