Presidential Candidate Kamala Harris Wants to Change Your Credit Score

One year in high school the national debate topic was homelessness. One of the strategic ways to be successful was to advocate a position that your opponents wouldn’t have thought through and researched in advance. If you had mountains of evidence to back up a position that caught the other team by surprise you were in a great position.

  • My partner and I started the year off arguing that what the homeless really needed was access to competent legal counsel. That way they could sue for benefits!

  • Later in the year we argued that what the homeless needed was P.O. Boxes. Since they’re homeless they have nowhere to receive benefits checks and getting processed for services required listing an address, so…

I couldn’t help but think back to that when I read about Kamala Harris’ plan to increase homeownership. Since you need a decent credit score to get a mortgage, why not just give people better credit scores?

She’s proposing to amend the Fair Credit Reporting Act to require credit scores to take into account more types of payments. Paying rent, cell phone bills, and utility bills on time would give you a better credit score. And a better credit score gives you better access to credit, the theory goes.

Currently credit scores are used as a proxy for credit risk. How likely is a bank going to get back the money they lend? Credit scores are especially useful, too, because they’re a numerical metric that they can use as a basis for decision-making that also protects them against claims of discrimination in lending practices.

However if we legislate changes to what goes into a credit score, we may be making the credit score a less useful tool for evaluating risky borrowing.

What Senator Harris’ plan supposes is that,

  • There’s a great opportunity for banks to issue mortgages to poorer and minority customers
  • They aren’t doing this — they’re leaving money on the table — because FICO scores leave out important information
  • Banks aren’t smart enough to figure this out on their own, instead they leave profits on the table

So Senator Harris is going to push for a law to help the banks make more money. Banks are conservative in their lending in many cases, perhaps even too conservative, because there’s regulatory risk in taking chances. Sadly legislating changes to the formula for credit is an unlikely way to get banks to issue mortgages to people who aren’t getting those mortgages today.

Seems like good politics: tell voters that they’re being treated unfairly by a scoring system that doesn’t have the complete information about how good they are, and tell them a simple technocratic change can make things better. On the other hand though anything that promises to make more points available to more people has to be a good thing, right?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Yeah, I’m pretty sure I don’t want to go back to the days before the home mortgage crisis. But thanks for the political ad on a travel blog.

  2. Another example of why voters should have to pass some type of basic test in order to vote. Of course that would never fly….

  3. To be honest, Harris’ plan to change credit ratings is dumb. It will have all sorts of unintended consequences. My cell bill this month for example was late. Why, because my credit card had to be changed due to a fraud charge and the autopay did not work. Of course, once notified, I went in and paid it. The idea that that would hurt my credit score is scary. Such proposals are like the plague. Many get hurt, but some survive. This might even be worse than Sanders and AOC’s plan to create and lose trillions on a Government issue credit card scheme.

  4. Hmm. I think I saw this playbook in 2008. Force banks to provide mortgages to people who cant afford them. The banks dont care because Fannie Mae guarantees payment. We have global recession and the same politicians blame the banks. But it is so easy for people on the left to offer “free stuff” than blame others when there is an associated cost.

  5. These solutions are like those from a grade school project that tries to solve the world’s immense problems.

  6. No one is addressing the real problem in that FICO scores are just poor math. Wealthy folks who do not have installment debt have average credit scores while folks getting payday loans COULD have better scores. Insurance companies who also use theses scores to be non discriminating then get to charge folks with perfect credit and no debt higher premiums due to their non perfect FICO scores.
    The Harris plan will generate plenty of income for the REITs who buys the crapped out original owner with a cash for keys offer.

  7. @Paul. Just curious, which REITs generates income from buying “crapped out original owner with a cash for keys offer.” Name one or two. I am curious to look them up to see what their business plan is.

  8. As you alluded to Gary this is just “cargo cult” economics.

    “Hey! These people with homes have good credit scores. If we boost other people’s credit scores, they will magically be homeowners too!” Same idea with trying to get everyone to go to college.

  9. Did HS debate as well! LD here. But yeah, I’m old enough to remember when we pushed policies to get more people into houses and relaxed lending standards to do so. That worked out SO well for everyone involved.

  10. Back in my day, Gary, the national debate topic was “Resolved: That the federal government should guarantee a minimum annual income to each family unit.” But today income is less important with housing costs so high and so much housing stock held by foreign investors, much of it left unoccupied, as in Miami.

    Kamala’s credit plan makes sense to help move the poor and homeless into housing. Lots of homeless pay rent, cell phone bills, and utility bills which could help better their credit score. (Maybe in an some crazy alternative universe called California?).

    Kamala also suggests giving money to black people to move them into housing. In this era of fluid gender and racial identity I’m sure every Nkechi Amare Diallo (aka Rachel Anne Dolezal) is ready for a housing handout and maybe some reparations money, too. But to prevent a massive amount of fraud you kinda need to require recipients to take a DNA test. But no self respecting ACLU card holder would ever allow the government to force everyone to take a DNA test before receiving a handout! The only alternative would be to profile people’s race based on appearance and we know that just ain’t gonna fly. (Sorry, not sorry, to those offensive folks who might show up wearing blackface, like Virginia’s Gov. Ralph Northam.)

    To Representative Pelosi, Senator Harris and Blogster Leff I offer the only equitable, tried and true way to move the poor and homeless into property. We simply allow people to squat on other people’s land like they did in the days of California’s John Sutter back in 1849. To this extent I propose we publish the addresses of all Pelosi and Harris land holdings and start a modern day gold rush. According to National Review, Nancy and Paul Pelosi alone have a large vineyard in California that could accomodate many tens of thousands of displaced people. Homeless or not, black or not, citizen or not you are entitled to a new California home.

  11. I think that the idea is lovely in theory but impractical in real life. Adding certain payments to the mix that constitutes your credit score is fine, but giving too much weight to paying your cell phone bill skews things too far in the opposite direction than the current system. Banks showed that they can be idiots when they caused the last global financial crisis. Do we really want to encourage more similar iffy loans, causing another?

  12. These people don’t have a clue or are actively distorting reality for political purposes. The more none credit/loan information added to the credit score, the more meaningless it becomes in the predictive credit models and then the higher the score a person needs to qualify for even a basic credit card. Banks are not going to lend money to people they know they are likely to lose it from. Recently experian added boost to its credit score for these type of payments in helping young people establish credit but don’t think people are going to qualify for great loan and credit products because of them. They are meant to give a person a chance at the lesser credit products to establish credit.

    Unless of course government forces companies to give credit cards to poor risk borrowers like it did with giving the poor and non white minorities (majorities) home loans which contributed to the 2008 crisis. Then if enough of that happens companies will just get out of the credit card business altogether.

  13. This would require a bifurcated score… one based solely on actual credit and a second score that is based on reliability of payment. I can actually see the second score used by utilities, landlords, cell phone companies, etc. who don’t extend credit, but nonetheless would like to have access to a score that reflects payment history for recurring charges.

  14. @AlohaDaveKennedy. Yeah, I debated minimum annual income too, (which seriously dates us both), but think about how life might have been different if the following year’s national debate topic had come to fruition . (For anyone not that old, it will take about 20 seconds of research on the Internet).

  15. @Phil – because the bills proposed (phone, utilities, rent) are not discretionary spend. When an individual’s cash flow becomes tight, these types of bills will be paid on time – or – utilities/phones will be shut off and/or eviction notices served.

    Defaulting on other types of debt/bills have much less impacts on the individual.

  16. @Ulises. You just made the argument for why those payment records should be used in extending credit for mortgages—housing payments “are not discretionary spend. When an individual’s cash flow becomes tight, these types of bills will be paid on time”.

    The Harris proposal has some bipartisan support. So José who made the sexist comment about this idea being evidence of her having no brains might want to check to see if Senator Tim Scott, a Republican male from SC who introduced such a bill into the Senate in 2017, was also dumb as dirt and slept his way up the ladder.

    It is also not just about mortgages. Many people are credit “invisible.” For example, when I first got out of grad school years ago, I had no credit rating even though I paid rent and phone bills on time. It was a nightmare when my first job required travel (needing to rent a car at the airport) and the company I worked for did not issue company credit cards.

  17. FICO’s nothing more than an empirical relationship. Harris’ idea is basically equivalent to legislation requiring pi to equal 3.14. As a practical matter it is likely that more people would be harmed by bringing in cell phone and rental records than helped.

  18. I’d gesture to say that those who are worried about plans like this are not paying utilities, cell/cable bills, rent, etc. on time. I think that any company who pulls a credit inquiry should be required to report payment history. Think of it – cell carriers pull a credit report/score, yet do not ever add any good history to it. The only reporting they will ever do is if it becomes delinquent and goes into collections. This is not balanced. I think it is a great idea that any company pulling a credit score should be required to report account status and payment history. If they are not willing to do that they they do not have access to pull the score.

    This is logical and makes sense. I’ve thought this for a while. Glad to see creativity here.

  19. I wouldn’t worry about this too much. The people who max out their credit cards and can’t pay their CC bills on time are probably also frequently late on their rent, utility, and cell phone bills ????!!!. And now, those consumers who intelligently avoid debt because they are undisciplined with their finances, now get new opportunities to trash their credit. Remember, you can make every payment on time for a decade, but miss one and it craters your score for the next 7 years. Some of those people might be trying to avoid building credit until they’ve got their act together. Now they won’t have a choice. Cell phone bills… really? Cell phone companies already have a powerful tool at their disposal to encourage payments. They don’t need the threat of a bad credit mark to get their customers to pay up.

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