Ask John: Why don't I get credit for paying my utilities on time?

This is a good question, asked by Dan Goodenall from Lafayette, LA. It’s a common theme that I receive questions about quite frequently at AskJohn@credit.com. The real question that Dan is asking is why his utility companies don’t report his on-time payments to the credit bureaus. To take it a step further, he’s also interested in finding a way that he can convince his utility providers to start reporting his many years of timely payments so that his credit scores can start to benefit.

You Don’t Get Something for Nothing

The first thing you have to understand is how information makes it to your credit files. Companies, referred to in the law as “data furnishers,” sign up with the credit reporting agencies so that they can send your account information to be reported on your credit files. Not every company chooses to do this. It’s not free. In fact, it’s downright expensive.

Any data furnisher has to first become a paying customer of the credit bureaus (or CRAs, commonly known as credit reporting agencies) in order to be able to send them your account information. All CRAs are “for profit” companies, which means that they will not accept your creditor’s information for free. This is why your landlord can’t report your history of on time rent payments.

The next problem is that the minute people or companies put something on your credit files, they open themselves up to the obligations and laws under the Fair Credit Reporting Act. That means that they have to have a staff of people who will take consumer disputes and address them in a timely manner. The problem for these companies is that “staff” equals “salaries,” which means it’s an expensive proposition.

And if that wasn’t enough to keep you from reporting credit information, here’s the kicker…if a consumer sues the data furnisher for reporting inaccurate information on his credit files (a violation of federal law), the data furnisher will have to hire an attorney to litigate the case. You can see how the costs can easily get out of control. Lawyers are expensive.

This is why some companies choose to not report information on your credit files. It’s expensive, time consuming, and a headache. This is why some small lenders, like credit unions and local banks, choose to report to only one or two of the credit bureaus. They’re trying to control their costs by not reporting to all three.

Does That Mean That I Can Stop Paying My Utilities?

Sure, you can stop paying your utilities, but how’s it going to feel going through the upcoming summer months without air conditioner, lights, gas, or a phone? I guess some people think they can avoid some of their creditors because if they don’t report to the credit bureaus…. who is going to know about it?

To quote Paul Harvey, “Here’s the rest of the story.” It’s much easier for a creditor or service provider to report negative information than it is to report positive information about your accounts. If you stop making your payments on your utilities or you skip out on your lease with four months to go, these creditors will likely turn your account over to a collection agency. And all collection agencies have the ability to report your bad debt to the credit bureaus -- all three of them. Once you get the collection agencies involved, your life gets much more difficult. I talked about this in a past edition of AskJohn. Read about collections.

How Can I Make Sure I Always Get Credit For My Payments?

This is pretty simple. All you have to do is make sure you choose lenders who report to the credit bureaus. It’s not a secret; just ask them before you apply. If they say, “Nope, we sure don’t” then it may be a better idea to choose another lender.

If you are trying to rebuild or establish credit, it’s important for you to choose lenders who will report to the credit bureaus. If you choose lenders who do not report, nobody will know about your new accounts or your history of responsible credit management. And if you’re trying to improve your credit scores, you’re going to have a harder time doing so if you rebuild your credit using lenders who do not report.

The credit score (FICO® score specifically) can only take into account information that actually shows up on your credit reports. If it’s not there, it neither helps nor hurts your scores. So, paying all of your utility bills on time is great…but it’s not going to help your scores at all unless your utility company chooses to report your on-time payments, which most do not.

We’ve actually done some of the legwork for you at Credit.com. If you go to our secured card page, you’ll see that we have partnered with lenders who report to all three credit reporting agencies. That means that everyone, including our good friends behind the FICO score, know all about your on-time payments.

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