Aug 06, 2013 Quinn Thomas
Despite what many consider to be a popular myth, credit bureaus and short term lenders actually want consumers to open new lines of credit and maintain positive rankings. For bureau workers, this makes their jobs easier - people can bulk up their credit history and have a positive view of the industry overall. This can then encourage consumers to take a harder stance on monitoring their reports, which saves employees a lot of effort.
On the part of short term lenders, if an applicant comes in to borrow money and already has a good credit score, it's exceedingly easy to approve the request. This means that the company can do more business, which benefits them in the long run.
Not to mention, taking out loans can positively affect the whole economy, assuming consumers are able to pay the funds back in a reasonable amount of time. People take out money and spend it, pumping cash back into other sectors.
So, if individuals pursue good credit, everyone can win. Lenders and credit bureaus should act as the front line in this push by educating their clients about best practices, because at the end of the day, generating good credit may be positive for all parties involved. One of the key pieces of information these businesses can share is that people, even if they're in dire financial straits, should make sure to pay their utilities bills on time.
Reporting negative information
According to MSN Money's partner blog, The Dough Roller, when people pay their utilities bills late, many providers tend to flag these actions with one of the big three credit bureaus. This causes institutions to knock down those individuals' credit scores, and doing so numerous times can cause major issues that plague consumers for years.
That being said, every utility company is different. The news source admitted that the reaction can vary from company to company, but regardless, it certainly is not a pattern anyone should get into. Lenders and credit bureaus should educate consumers about the pitfalls of repeatedly missing utilities payments, because this detracting factor is not something many people realize. A lot of individuals are more concerned about missing mortgage or car payments, because the results could include having their cars possessed or homes go into foreclosure. Even if people don't pay their utilities for a couple of months, the services might still be continued, but the behind-the-scenes effects are sinister.
Vicious circles abound
When people fail to pay utilities bills, they then cannot easily secure loans, which could send them into a downward financial spiral that prevents them from obtaining short term loans to pay expenses during a tough month.
This is especially true at alternative finance companies, although they are known as some of the most lenient financial businesses operations out there. These are the institutions that would lend to people during the Great Recession, when banks and traditional lenders across the globe were closing their doors.
In fact, many such companies are considering utilities payments specifically when approving loans. These providers don't often report to credit bureaus unless a consumer has missed bills. However, some alternative lenders seek out information proving a history of positive, timely payments and create a unique, more comprehensive credit score - following the Payment Reporting Builds Credit model - using this and other financial data. This method allowed many short term lenders to continue to approve loans in the thick of the fiscal troubles a few years ago while mitigating their own risk.
That being said, if consumers skip making utilities payments, they won't be qualified to receive funds from alternative services either, so it's important that lenders share this information with would-be borrowers.