Too many communities in America are struggling financially. While economic recovery from COVID-19 is strong in Arkansas, there is the risk of leaving too many Americans behind. We must make sure everyone in Arkansas, and across the country, has access to financial opportunity.
As a former community banker, I’ve seen how access to credit can enable people to become homeowners, pay for college, start a business or buy a car.
But in some areas of the country, many Americans are credit invisible. In fact, two areas in Arkansas — Helena and Forrest City — rank in the top 25 of the Consumer Financial Protection Bureau’s list of credit invisible or unscoreable regions. The current system for calculating credit scores hasn’t kept up with technology. Too many people are unfairly denied affordable credit because they don’t have a traditional credit history.
There is a way to open the door by using additional financial data, like rent, utility and phone payments, to determine credit worthiness. My work on the House Financial Services Committee has taught me the positive impacts of using more data in credit underwriting, which researchers have found creates a clearer picture of a household’s ability to take on credit.
This is an important issue for underrepresented communities that face challenges when it comes to credit access. This issue also affects those who live in rural areas because they are more likely to live in a credit-insecure county where a high concentration of residents have no or little access to credit or a nearby bank branch. Rural banks tend to be smaller, community banks, which provide excellent service to their customers and get to know them well, but may not offer as wide a range of credit products as large corporate banks. And rural households are less likely to use online banking.
As a result, nearly half a million adults in Arkansas — about 1 in 5 — have a tough time getting credit because they have little or no credit history. An estimated 15% of rural Americans are “credit invisible,” with no credit record at one of the three credit reporting agencies, compared with 11% of Americans overall.
Incorporating additional sources of financial data in credit decisions helps more Americans access credit and realize financial opportunities. A March 2021 analysis by credit reporting agency TransUnion found that including rent payments in someone’s credit file helps increase their credit score by 60 points on average. The Policy & Economic Research Council has shown that when utility and phone payments are included in credit files, people whose credit previously couldn’t be scored ended up having similar credit risk profiles as the general population. Black and Hispanic households, and generally underserved communities, benefited most.
Many Arkansans pay their bills on time, and that should be reflected in their credit scores. That’s why I’ve championed the Credit Access & Inclusion Act, which allows landlords, utilities and telecoms to report payment data to credit reporting agencies so people with little or no credit history have a more comprehensive picture of their payment histories and can build up their credit scores.
The point isn’t to suppress data or “hide the ball” when it comes to a consumer’s financial position. We operate in a risk-based lending environment, which means both positive and adverse information is shared on the credit file. My legislation doesn’t change that. It does ensure hard-working Arkansans get credit for what they’re already doing: paying their bills on time.
More and better data can open the door for millions of Americans — rural, urban and suburban — to join a 21st century lending economy. The inclusion of new sources of data will empower consumers, boost economic growth and strengthen communities. As our state and nation move more fully into economic recovery, let’s bring everyone along.
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