The ABCs of Reporting Utility Payment Data
Alternative data sources, like utility payment data, can drive financial inclusion for more than 91 million consumers in the U.S. who have thin or no credit files. Traditional credit reporting standards shut out the credit invisible and underscored. As more innovative solutions continue to hit the market, credit-building solutions are enabling the financial services industry to rethink the way it assesses creditworthiness.
As beneficial as reporting utility payment data is for consumers, it also provides a growth opportunity for credit-building companies. To be successful, here are the ABCs that credit builders should keep in mind:
The utility payment data acquisition method is key. With companies relying on alternative data to make decisions regarding an applicant’s credit risk, the accuracy and reliability of the data are essential. Credit-building companies must choose wisely when it comes to utility payment data collection methods, to ensure data integrity and to prevent negatively impacting the decision-making process.
Credit-building companies must choose wisely when it comes to utility payment data collection methods.
Collecting utility payment data directly from the source via automation not only streamlines the data collection process, but it also improves accuracy and credibility. By collecting utility and telecom bills from the provider, rather than asking applicants to submit them, credit builders can ensure that the data will be up-to-date and free from fraud. Automation also acts as a scalable and cost-effective method.
Conveying the benefits to the consumer is essential. Similar to rental payment history, utility payment history is predictive of consumer financial behavior, but not often included in traditional credit scoring. 54 percent of consumers are unaware that their utility payments aren’t reported in their credit files and therefore don’t know the benefits of electing to report utility payment data.
54 percent of consumers are unaware that their utility payments aren’t reported on their credit histories.
Self-reporting of alternative data can boost credit scores. For example, adding utility payment data to VantageScore increased approval rates for low-income adults, African-Americans, and Hispanics by more than 20 percent. It’s up to credit-building companies to educate consumers on these benefits to encourage them to consider their options. Only then will reporting utility and telecom payment data be able to expand credit opportunities for millions of consumers.
Compliance with the credit bureau reporting standards is essential. The Fair Credit Reporting Act (FCRA) excludes the usage of consumer data found on social media for creditworthiness assessments but allows the use of data from utility and telecom bills. Credit builders have to ensure that the information they report on consumer credit histories is correct, up to date, and compliant with credit bureau standards.
Alternative data expands the number of data points used to provide an overview of a consumer’s credit history and is accepted by the “Big Three” bureaus: Experian, TransUnion, and Equifax. If you’ve already invested in furnishing data, why not report another data category and improve your ROI? Reporting utility payment data allows credit builders to offer more products and services that go beyond the traditional analytics for credit risk assessment.
There is also a ‘D” that data furnishers need to be aware of as it relates to reporting during times of disaster. The Consumer Data Industry Association recently published the latest guidelines related to credit reporting for consumers affected by natural or declared disasters. In addition, the Paycheck Protection Program has direct impacts on credit reporting and the types of documentation required to support a higher demand for loans.
It is also a good idea to report alternative data throughout and beyond the COVID-19 crisis. Many traditional credit data sources from banks and lenders will have inconsistent reporting due to loan forbearance and opportunities to skip payments. But consumers will likely continue paying essential everyday expenses like rent, utilities, and phone bills. Getting recognized for these payments can help consumers maintain or improve their credit profiles.
Broaden your product offering by reporting utility payment data
Urjanet offers an ideal solution for reporting utility payment data that offers fast speed to revenue for those that are already reporting rental payment history. Adding utility data to your offering is what your customers need to improve their credit scores and gain needed access to credit.
To learn more about what the Urjanet Utility Data Platform can do for your business, speak with an expert today.
You Might Also Be Interested In:
- White Paper: Building a Risk Model with Utility Payment Data
- Blog: The Impact of Reporting Everyday Expenses on Credit Scores
- Blog: The Economic Impacts of Alternative Data on Financial Exclusion
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About Ma-Keba Frye
Ma-Keba Frye is a Content Marketing Associate at Urjanet, assisting with content development and execution. When she's not writing, she enjoys reading, listening to music, and volunteering.