Senator Kamala Harris wants to add more data to how credit bureaus calculate credit scores as part of a broader plan to address the black homeownership gap in the U.S.
The Democratic presidential candidate from California unveiled her plan last week during an appearance at the Essence Festival in New Orleans, an annual music and culture festival sponsored by Essence magazine.
Harris called for amending the Fair Credit Reporting Act to require credit reporting agencies to include payments of rent, cellphone bills and utilities when calculating credit scores.
While alternative credit scores have been developed that do just that, the traditional FICO score, named after the Fair Isaac Corporation FICO, +0.56% typically considers payments on debt such as credit cards, mortgages and auto loans. (Experian EXPGY, -0.96% however, has a tool that will include certain utility accounts included in your credit report.)
Read more: How ‘redlining’ still hurts home values
There are an estimated 26 million people who are “credit invisible” and another 19 million who are said to have “unscorable” files, according to the Consumer Financial Protection Bureau. These people don’t have enough bank or credit-union accounts to have a credit score by today’s standards.
Legislation to amend the Fair Credit Reporting Act has already received bipartisan support. A bill introduced in 2017 by former House Representative Keith Ellison, a Democrat from Minnesota, that would require this additional data in credit scoring managed to pass the House of Representatives. The Senate version of that bill, which was authored by Senator Tim Scott, a Republican from South Carolina, attracted both Democratic and Republicans co-sponsors, though Harris was not among them.
And previous legislation that was signed into law by President Trump included provisions that sought to broaden the range of information lenders consider when underwriting mortgages. The 2018 bill that rolled back Obama-era financial regulations required Fannie Mae FNMA, -0.89% and Freddie Mac FMCC, -0.37% to accept loans that lenders provided using alternative forms of credit scores in the underwriting process.
Proponents of alternative credit scores, such as the FICO 9.0 and the VantageScore, argue that millions more Americans would be able to get credit scores if they include data such as rent and utility payments.
However, others have argued that alternative credit scores alone may not be much of a game-changer in terms of creating a new pool of potential home buyers. The 2018 legislation, for instance, didn’t require lenders to abandon the traditional FICO score altogether. As a result, some argued lenders may choose to ignore the alternative scores or, if they used them, consider those borrowers to be riskier and thus charge them a higher interest rate.
Also see: More Americans are taking longer to pay off their credit-card debt
Black and Hispanic consumers are more likely to be unscorable or credit invisible. About 15% of blacks and Hispanics are “credit invisible,” compared to 9% of whites and Asians, according to 2015 data from the Consumer Financial Protection Bureau.
This disparity contributes to the racial gap in homeownership, Harris has argued. The homeownership rate among white Americans is 73.2%, whereas the rate among black Americans is just 41.1%, per the U.S. Census Bureau.
She also proposed giving $100 billion in down-payment and closing-cost assistance — up to $25,000 per household — to help black families purchase homes in parts of the country that were traditionally “red-lined,” meaning that people of color were historically denied mortgages to purchases homes in those neighborhoods.