Frustrated after being denied for a credit card and later a personal loan, a reader recently wrote in to find out why his utilities and rental payments weren’t being reported in his credit reports or factored into his credit score. His question:
“I just applied for a credit card and was turned down. My credit score is currently at 550 and there are multiple collections for the same bills showing up in my credit reports from at least 10 years ago. I have had no credit history for years because of cash payments, even though I DO pay all of my housing expenses for rent and utilities using bill pay through my local bank. I can’t even qualify for a personal loan and I pay my rent and all of my utilities on time or before the due date, but that doesn’t seem to matter at all!! Why doesn’t my local payment history ever get reported for my utilities?!” — Allan
Being denied for a loan or a credit card is frustrating, especially when you’re trying to overcome past credit problems in order to rebuild your credit. Fortunately, we have answers that can hopefully relieve some of your frustration, as well as help you address some of the problems you’re currently facing.
Monthly Utility Payments
Generally speaking, on-time monthly payments for services like telephone, electric, water, cable, Internet, etc. are not reported by most utility companies. And while some might argue that utilities aren’t considered traditional credit accounts (where you apply for a loan and finance the account with interest and repayment terms associated with the agreement), under federal guidelines, utility companies are eligible to report your monthly bill payment history to the credit reporting agencies. The problem here is that most utility companies only report your account information to the credit reporting agencies if you default on the account and/or the account is turned over to collections.
Having said this, there are some utility companies that do report positive monthly payment histories, it really varies by provider. What’s important to understand here is that even with traditional loan accounts, lenders aren’t legally obligated to report monthly updates to the credit reporting agencies. This is because the credit reporting system is completely voluntary, and there is no law that requires companies to report your account information in your credit reports. The reason most lenders do report is because they rely on this information to determine a consumer’s creditworthiness — or more specifically, how likely they are to pay a loan back on time and as agreed.
Monthly Rental Payments
Up until a few years ago, the only time rental information was reported in your credit reports was if you stopped paying your rent, or broke a lease and the account was turned over to collections. Meaning only negative rental payment history was ever reported in your credit reports.
In 2010, Experian was the first credit reporting agency to include on-time monthly rental payment history information in its credit reports, as long as the data is furnished to them by the property manager or through a third-party service like William Paid, Rental Kharma or Rent Reporters — all of which include some sort of fee to use their services that the consumer would have to pay for. Not too long after, TransUnion followed suit, making Equifax the only major credit reporting agency that currently does not include on-time rental histories on its credit reports.
Credit Scores and Rental Histories
The most important question here is whether or not your rental payments will help you build, rebuild or establish credit. If your monthly payments are on time, and the account is reported in your credit reports, you might assume that the positive payment history would automatically help your credit scores — but this isn’t necessarily true and would depend on the credit score model being used.
For the VantageScore, rental histories are included in the score model’s calculation so any positive rental payment history will help your credit improvement efforts for this particular score. However, the FICO score — the most widely used by lenders— does not factor in rental histories as part of its general use FICO scoring algorithm. To make matters a little more confusing, FICO also developed the FICO Expansion score “to help lenders assess the credit risk of an estimated 50-70 million U.S. consumers who have either no traditional credit history or “thin” credit bureau files” — and this model does factor in rental histories if they’re included in your credit report.
The point: Whether or not your rental payments will help your credit building efforts will depend on which credit report and which credit score is being used — and whether or not your lender uses the score to make their lending decision.
Qualifying for a Credit Card or Loan
Now that we’ve addressed how utilities and rental histories may or may not affect your credit reports and scores, let’s focus on what it takes from a credit perspective to qualify for a credit card or personal loan.
When it comes to qualifying for a credit card (or any type of financing), each lender’s requirements will vary. As a general guideline, most lenders require credit scores above the 620-640 range, and even that range is considered more sub-prime so the interest rates and terms will not be the best. Ideally, you’ll want to aim for scores in the 740+ range to get the best interest rates and terms.
As far as your current situation stands, first focus on what’s causing your scores to be so low — and with a 550 credit score, there is definitely something in your credit report that’s pulling your scores down. The first step is to pull your credit reports to make sure that the information being reported is accurate — and if it’s not, file a dispute to have the information corrected.
If there are collection accounts that are still being reported 10 years later, you’ll want to dispute them to have them removed. Collection accounts are reported for seven years from the date the account initially made it to severe delinquency status, typically the 180-day late mark.
If your scores are low because of negative (but accurate) information, it may take some work to raise your scores before you’ll be able to qualify for traditional lending products. But how do you determine which steps you should take to get started? It’ll depend greatly on your individual credit information, but fortunately, all credit scores are returned with reason codes or score factors that explain where you lost the most points in your credit scores. This will help you pinpoint where you need to focus in order to improve your scores specifically. However, it may also be helpful to understand how credit scores are calculated, what factors are considered in the calculation, as well as specific strategies that have been proven to help consumers that are suffering from past credit problems.
Finally, monitoring your credit score regularly is especially important when you’re trying to rebuild your credit. And there are many free tools that offer you your free credit score. Credit.com’s Credit Report Card gives you your credit score and a breakdown of your credit profile at no cost, so you can know what areas of your credit you need to work on to build your credit. As you build your credit and get a better score, you not only stand a better chance of getting approved, but you will also have access to lower interest rates so that you pay less over the life of your loans.
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