Behind on repaying a loan from a friend or family member? They canâ€™t report you to a credit bureau.
There are various entities that regularly furnish consumer information to credit bureaus such as Equifax, Experian and TransUnion. Most of them are banks, credit card issuers, lenders and collection agencies. Utility and telecommunication providers, rental property managers, landlords and individuals are typically not furnishers, though there are exceptions.
In a 2012 report, the Consumer Financial Protection Bureau estimated there were approximately 10,000 furnishers reporting to the bureaus. About 40 percent of the 1.3 billion active trade lines on file at the time were bank cards. Most other trade lines were supplied by retail card issuers, the education industry and mortgage and auto lenders. The top 10 furnishers provided 57 percent of all trade lines, and the top 50 furnishers provided 72 percent.
The landscape of the credit reporting system hasn’t shifted dramatically since the CFPB released its statistics.
“At this point, it’s still largely a financial services model,” said John Ulzheimer, a credit expert who has worked for FICO and Equifax in the past.
|WHO CAN, WHO CAN’T FURNISH PAYMENT INFORMATION TO THE CREDIT BUREAUS?|
|Can furnish positive and negative payment information to credit reporting agencies:|
|Can report negative information, but may be barred by state law or otherwise unable to report positive information:|
|Unable to report any payment information:|
Changes could be on the horizon, however. While utility, cellphone and rent payments typically only land on your credit reports once an account becomes delinquent, timely payment information could be reported to bureaus in the years to come. Informal loans not administered via third parties, however, are likely to remain private matters.
Mom and dad can’t report you
Reporting payment information to the credit reporting agencies requires that you have an account with at least one of them. A person who has informally loaned you money – whether it’s to repay another debt, start a business, repair a home or car or any other purpose – is very unlikely to have the ability to ruin your credit if you skip or stop repayments.
“If you don’t have an account with [a bureau], there’s no systemic way to report information to them,” Ulzheimer said.
Additionally, the Fair Credit Reporting Act (FCRA) spells out strict requirements for furnishers, and most of them can only be met by businesses. Furnishers must regularly report accurate information in a standardized format and investigate within a specific time frame any disputes initiated by consumers. An individual who lends money to a family member or friend is typically not capable of meeting those standards.
Even if an individual could somehow comply with the FCRA, the bureaus’ own reporting and security requirements would make it nearly impossible.
“You need the right kind of computer systems and secured data access,” said Rod Griffin, director of public education at Experian. “We often audit the organizations that report to us on site to make sure their systems are secure. The cost of doing so is prohibitive for an individual.”
While informal loans fall outside the purview of the credit bureaus, online peer-to-peer lending is different. Peer-to-peer lending sites, such as Lending Club and Prosper, work with banks to fund loans from institutional investors and individuals to their users. Peer-to-peer platforms are growing in popularity – PricewaterhouseCoopers estimates they issued about $5.5 billion in loans in 2014, and that number could reach $150 billion by 2025.
Failure to pay back a loan from anyone on a peer-to-peer lending site could damage your credit. Prosper spokeswoman Jennifer Clark said in an email the company reports monthly payment history to all three credit bureaus.
Building credit by paying phone bill, rent
Mobile phone service providers and landlords typically do not report payment information to credit bureaus, but they don’t face as many regulatory barriers as utility companies. Many in the credit reporting industry believe more data on rent and cellphone bill payments could help consumers build or improve their credit. However, Experian’s Griffin said some consumer advocates are concerned that reporting this information could hurt those who don’t always pay their bills on time.
“We think the positive impact outweighs the potential negative impact for some consumers,” he said. “If you don’t pay your cellphone bill and it goes to collections, it will be reported anyway.”
Griffin said cellphone providers’ embrace of bill payment reporting may simply be a matter of them getting more comfortable with the process. Meanwhile, there are now online services, such as RentTrack, RentPayment and Rental Kharma, that allow consumers to have their on-time rental payments reported to the bureaus. TransUnion and Experian also have their own services that property managers and landlords can use to report renters’ payment histories.
“We encourage people to talk to their landlords and have them report that information, especially if you’re trying to establish credit for the first time or rehabilitate a credit history that’s had some problems,” Griffin said.
Pay what you owe – furnisher or not
No matter who you’re indebted to, it’s important to be a faithful payer. A missed credit card or loan payment can stay on your credit report for up to seven years. Even though a friend or family member can’t report you to a credit bureau, failure to pay back a personal loan can ruin the relationship and even trigger a lawsuit, which can affect your credit.
“If you lose a lawsuit and therefore have a judgement against you, that can certainly appear on a credit report,” Ulzheimer said.
If you always pay your rent and electricity, cellphone and cable bills on time, keep up the good work. It could eventually boost your credit score.
See related: Credit bureaus to refund $17.7 million for score marketing, Who owns consumer data? CFPB launches inquiry