The Profound Effect of Telco and Utilities Data on Expanding Access to Homeownership–Equifax’s Jennifer Henry

Jennifer Henry is managing director/chief strategy officer, government credit, capital markets and housing strategy for Equifax.

A single financial opportunity can be a critical step to establishing individual financial health and generational wealth that can change the trajectory and livelihood of families and communities for generations.

While credit reports remain a strong indicator of credit history and past financial reliability, information such as telecommunications, pay TV and utilities payment data that is not included in a traditional credit report has the potential to help responsibly expand consumer access to credit opportunity and support a more inclusive economy.

As the mortgage industry works to find ways to expand access to credit for more U.S. consumers, findings presented by Georgia State University professor of Real Estate and Finance, Vincent Yao, in a new white paper: “Expanding Access Credit in the Mortgage Industry: Advantages of Using Telco and Utilities Data in Mortgage Underwriting and Pricing”underscore the importance of telecommunications, pay TV, and utilities data in bringing previously underserved populations (defined in Yao’s study as Black and African American and Hispanic White consumers) into the mortgage market.

Meeting the Needs of an Underserved Market

It is estimated by the Consumer Financial Protection Bureau (CFPB) that as many as 45 million Americans may lack the required data used to create a traditional credit score. As such, these thin-file consumers–consumers with a credit file that doesn’t contain enough information to be used to calculate a credit score–or no-file consumers, consumers that do not have a consumer credit file, find themselves on the outside looking in when it comes to access to credit. However, by expanding the data set to include telecommunications, pay TV and utility payment data, many of these consumers’ true creditworthiness is better reflected.

Yao’s research into the anonymized data of 191 million U.S. consumers determined that almost 20% of the population could go from no-file to thin-file, becoming credit visible to lenders, when using telco and utility payment data. Additionally, within the 191 million U.S. consumers, Yao identified 81 million U.S. consumers fell into the thin-file category of being credit visible, but unscorable. With the addition of telco and utility payment data, this group of 81 million thin-file consumers could become scorable with the additional data.

To further understand the impact of adding utility data to credit files on historically excluded populations, Yao layered an additional data set from a leading national demographic data provider to his research, since demographic data is not included in consumer credit files. For example, Yao’s research found that among the 8.7 million Black or African American U.S. consumers in this demographic data set, that are either credit invisible or unscorable, approximately two million individuals have telecommunications, pay TV or utility data available that could help improve their opportunities.

This is significant because incorporating this additional payment history information alongside traditional credit files can help credit invisible, historically excluded populations to increase their credit maturity. Yao found that over a two-year period, consumers that were credit invisible or unscorable, but had telecommunications, pay TV and utility data, were 1.5 times more likely to migrate to thick file consumers – consumers that have enough information on their credit file for a credit score to be calculated – than credit invisible or unscorable consumers without telecommunications, pay TV and utility data. The result was 1.2 million more consumers becoming credit visible.

Furthermore, the white paper notes that among the credit invisible, historically excluded populations, that 38% of the 1.2 million people that become credit visible, also increase their credit score by 50 points over two years. For reference, the average rate of improvement for all credit visible consumers that improve their credit score by 50 points in a two-year period is 28%.

Expanding opportunities for equitable home ownership is critical for the success of communities nationwide as a step to establishing generational wealth for families and spurring positive economic change. Time and again, the mortgage industry has seen that more complete borrower profiles produce better outcomes and as lenders find ways to integrate more alternative data sets like telco and utilities payment history into the loan decision process, they will be positioned to responsibly serve more potential homebuyers. Equifax is the first National Consumer Reporting Agency to make certain telecommunications, pay TV and utilities attributes available to the mortgage industry to provide a fuller picture of consumers’ financial profiles – potentially enabling the more than 191 million American consumers that have these records with greater opportunities for homeownership.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)