Not every article on our blog is immediately identifiable as housing-related, and this is one of those articles. In short, if you have a poor credit score, you will obtain mortgages with suboptimal rates (if you get a mortgage at all). As such, it is important to improve your credit score every chance you get. In this article, we discuss how paying your phone bill (that thing you’ve been doing forever) can improve your score.
In the near future, utility and cell phone payments will be added to your credit report, and the effect of improving the credit scores of millions across the country, this is good news for everyone, or at least everyone with utilities and a cell phone… so everyone.
Sometime in the first quarter of 2019, Experian will begin factoring in utility and cell phone payments to their credit ratings for individuals. In case you have been living under a rock, the 3 major credit reporting agencies are Experian, Equifax, and TransUnion. Most, if not all, lenders check your credit score with the 3 major reporting agencies before extending any kind of loan; a poor credit score will translate into a higher interest rate. Given how much houses cost, 1% can represent $10,000 or more (that’s a lot of cell phone bills you could have paid).
This development is one of many efforts to aid individuals with low or no credit score, a surprisingly large segment of the population. Improving credit scores will ultimately allow more individuals to purchase homes (the debate is still out as to whether that is a good thing, as gratuitously granting mortgages was part of the problem in the Great Recession of 2008), which creates a bright future for the housing market in the next 5 to 10 years.
Speaking of the Great Recession of 2008, the credit reporting agencies have been responding to complaints from banks and other lenders about their inability to grant loans to a large group of Americans and has begun enacting policies that will operate to increase the credit score of many people who don’t build credit in the traditional manner. One such response can be found after Experian was approached by major lenders seeking additional information they could use to determine the risk of individuals with little, or no, credit history.
This new program won’t operate automatically, so you will have to opt-in to it. Specifically, you will be required to link the bank account you use to pay your utilities and cell phone, which will allow Experian to track your monthly payments, and adjust your credit rating accordingly. It appears that Experian will not be tracking missed payments, which seems like a bit of an oversight.
Historically, credit reports only reflect traditional borrowing like payments on retail installment contracts, payments for student loans and credit cards, and any other large items that required a payment plan. Considering the fact that many people, with limited income, can only show their financial responsibility by paying for essentials , Experian is providing a non-traditional method of improving your credit. A good credit means a good deal!
At the Chernov Team we pride ourselves on keeping up with all things real-estate, even when those things don’t immediately appear to be related to real estate. We understand that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.