Imagine if the way you reliably pay your cell phone bill each month turned out to be the basis on which you come to enjoy access to substantial credit at competitive rates.
It could happen.
According to USA Today, the findings of a study conducted by ID Analytics LLC, a developer of consumer risk management software for businesses, suggest that evaluating cell phone and utilities payment histories can be just as reliable a predictor of credit risk as the payment histories associated with credit card bills, mortgages, auto loans, and student loans.
“This is a win-win for lenders and consumers, especially young adults and other populations that have historically been marginalized by traditional scoring models,” said Ajay Nigam, an ID Analytics senior vice president, in a written statement.
Equifax, Experian, and TransUnion, the nation’s three principal nationwide credit reporting agencies, evaluate credit histories by looking at more robust kinds of accounts, like mortgages and car loans, but a lot of people, primarily young adults and low-income folks, are often unable to access meaningful credit because they have never had any such financial products in their names. This deficiency tends to leave them unable to access “regular” credit at a competitive rate.
However, ID Analytics uncovered something interesting: 70 percent to 90 percent of credit applicants who either have no credit history or very little credit history…do have accounts with telecommunications companies by virtue of having cell phones.
Even more importantly, in its look at the portfolio of a popular credit card issuer, ID Analytics found that roughly half of the people denied a credit card by that company for having no credit score would have been eligible for the plastic if cell phone bill payment histories, as well as other, “alternative” payment histories, were utilized as a part of the underwriting process.
By Robert G. Yetman, Jr. Editor At Large