We’ve told you the basics of building and maintaining a high credit score—paying bills on time (every time), keeping credit utilization below 30%, making sure accounts never end up in collections, etc. Having a high credit score is crucial for your financial health, since it determines how much you’ll pay in interest for a mortgage or other loan.
The current credit scoring system favors consumers who take on debt (responsibly, of course)—while penalizing those who would prefer not to use credit at all. Americans who shy away from loans and credit cards are left without a credit history, which makes it very difficult to get a loan at a good rate—even if they are perfectly capable of and willing to make payments on time.
RELATED: How Your Credit Score Works
New legislation currently on the floor of Congress seeks to rectify this issue. The “Credit Access and Inclusion Act” will include payment histories for accounts that aren’t loans—like utility bills, cable and rent—in the credit scoring process. That way, people who don’t use credit cards or don’t have mortgages or student loans would be rewarded for paying their other expenses on time with a higher credit score. If passed, the bill could have a dramatic effect on a large swath of people: Congressman Keith Ellison, co-sponsor of the bill, told MarketWatch that 50 million Americans currently don’t have credit scores.
How the New System Could Hurt Consumers
While recent research by WilliamPaid, a rent-payment service, found that 70% of respondents wanted their rent and utility payments to count toward their credit scores, opponents posit that having more factors in a credit score just gives people more chances to make mistakes and damage their scores. “It can take years to build a solid credit score and a few months to destroy it, and then it would take as long as 7 to 10 years to rebuild it again,” John Ulzheimer, consumer credit expert with CreditSesame.com, told MarketWatch.
With lending requirements still tight from the recession, credit scores are more important than ever. It’s now for Congress to decide what should count toward determining how reliable a borrower will be.