The credit reporting agencies have long had a very simple business model. They all sell credit reports to any company that has a “permissible purpose” to see and use the information, and they gladly accept the reporting of information if it fits their financial services mold. Traditionally (and with very few exceptions), the core account information on your credit reports is your mortgage, auto, student or personal loan, one of the various forms of plastic (credit, charge, retail and petroleum), 3rd party collections, and three public records (bankruptcy, liens, judgments).
As you may have already figured out, this isn’t an exhaustive list of our monthly obligations. There are utilities (both public and private), insurance payments (for those who don’t pay all at once), 2nd tier credit obligations (title loan, pawn loan, payday lending), and anything else that requires a perpetual monthly payment. Of course, none of the items in this paragraph show up on your credit reports, unless you default. And unless you choose the difficult path of forcing ECOA Reg B on your lender, you’re unlikely to get any credit for properly managing these obligations.
There are a variety of reasons all of your obligations don’t show up in your credit files. First, and foremost, credit reporting is a voluntary act. Neither you nor the credit bureaus can force any company (even a lender) to report anything to the credit bureaus. Some companies are simply not willing to incur the costs and liability that comes with reporting data to a credit reporting agency.
Of course there are benefits to reporting data to a credit bureau. You’ve heard the phrase, “the carrot and the stick?” Well, credit reporting is the stick. Miss a loan payment and all the world knows about it because it’s likely going to end up on your credit reports. Miss a utility payment and it’s like a tree falling in the woods…nobody knows about it (other than your utility provider). And as long as you “cure” the account, no harm no foul.
I already know what some of you are thinking,“If this is true then why is there a defaulted (enter utility company name here) bill on my credit report?” Just because utility companies don’t regularly report to the credit bureau,s it certainly doesn’t mean they can’t impact your credit. If you ignore them long enough they’ll simply outsource the collection activity to a 3rd party collection agency and – you guessed it – they do report to the credit bureaus. Oh, and your power, cable, water, phone, gas, or electricity has also been cut off, which is the best “stick” you can possibly have as a service provider.
Even if a lender reports your account to the credit reporting agencies there’s no guarantee that ALL of the important attributes of the account will be included with their reporting. Some credit card issuers will withhold your credit limit and not report it to the credit bureaus. This is problematic because it can lower your scores.
Now, just because something isn’t on your credit report doesn’t mean you can’t try getting it on there. You can ask the credit bureaus to add it. You can certainly ask the lender or service provider to report it. And, you can certainly go overboard and try and leverage the legal system. I’m an expert witness in a case right now where a woman is suing her mortgage company for NOT reporting her mortgage to the credit bureaus, which is a huge waste of time because there’s no law requiring them to do so.
It looks like we’ve established that you simply cannot get all of your obligations on your three traditional credit reports, where it matters most.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.