The lending environment forever changed in 2007. Thank you Great Recession. Up went more restrictions, the need for stricter compliance, and a more risk-averse lending climate. Sure, financial institutions have since lowered some of the lending hurdles, but it can still be challenging for a consumer to rebuild or establish credit.
If only there was a straightforward option to thicken the consumer’s file …
A simple and obvious place to start is to call on all utility, rental, telecommunication, cable, or other regularly (i.e. monthly, quarterly) billed payment obligations to report their consumer’s payment history to the credit bureaus. This is termed as full file reporting.
Think about it. If a consumer has no regular payment obligations (trades) and is renting an apartment, they (i.e. student) will most likely have a rental, electric, gas, and other utility bills to help them establish a credit history. If a consumer had difficulty maintaining good credit in the past and is looking to rebuild, having good payment performance reported from rental, electric, gas, and other utility bills will only help drive that consumer on the rebuilding path, opening access to more credit options.
A recent Experian study on the energy-utility industry revealed the significant benefits of full file reporting. About 10 percent of consumer profiles transitioned to what the industry would consider a thick filed consumer when their utility trade was reported.
Additionally, this inclusion of utilities reporting catapulted more consumers from subprime to nonprime and nonprime to prime levels on the risk scale. The subprime risk category decreased by 14 percent, while nonprime risk increased by seven percent, and the prime risk increased by eight percent. Meanwhile, 95 percent of the subprime risk and 75 percent of the nonprime risk consumers had an increase to their risk score.
Clearly, positive energy-utility reporting presents an opportunity for energy companies to play a key role in helping their consumers build a credit history. The ability for many of these consumers to become credit scoreable, build a more robust credit file and potentially migrate to a better risk segment simply by paying their energy bills on time each month is powerful and represents an opportunity for positive change that should not be overlooked.