The world of credit: PRBCJohn J. Hudockcredit report, alternative credit bureau, NHCR, FICO, FHA
Is business slow? Need more customers? How about 50 million
customers? That is a conservative number from FICO, Experian,
Equifax and TransUnion of how many consumers have thin or no credit
files. This group has an unusable credit score with the three
national repositories. Some of these estimates are more than 70
million adults. This number includes recent immigrants, new college
graduates and divorced or widowed women that do not qualify for the
traditional credit score, even if they have a good salary and pay
their bills on time.
What do you do when one of the individuals in this situation
wants a mortgage? You could tell them to come back when they build
their credit, or you could call Payment Reporting Builds Credit
(PRBC) at (877) 772-2123 or visit www.prbc.com. What is PRBC? It is
an alternative credit bureau. With the problems in the sub-prime
market, lenders usually just direct homebuyers with little or no
credit history into higher-cost mortgages or none at all. Now,
banks are eager to gather all the information they can on potential
borrowers, especially those who don't fit typical lending
scenarios.
Some lenders, like Bank of America, will look at rent and
utility bills when screening customers for a loan, but they are
just starting to consider increasing ratings based on that
information. Hudson City Bancorp Inc. doesn't use credit scores at
all. It prefers to do its underwriting the old-fashioned way, by
having its brokers call to verify employment, check assets and
collect financial histories.
In 1987, Michael Nathans started a rental verification company
providing data on landlords and tenants from 60 courthouses and
charged $4 per report. According to Michael, he has been in contact
with Fannie Mae since 1990 and with the National Housing Credit
Repository since 1997. Michael is a visionary, and in 2002, he
recognized the plight of individuals who paid their bills on time
and had no credit rating. He started a method to supplement the
traditional three reporting agencies.
In March 2003, PRBC became licensed as a credit reporting agency
after receiving $1 million in grants from four different
organizations, like Ford and Citigroup Inc., and then received a
matching grant from IBM. Nathans founded PRBC. PRBC is a different
type of consumer reporting agency that maintains a history of your
monthly bill payments, including utilities, rent, cable and other
payments. Also in 2003, the PRBC reporting method was approved for
Fannie Mae and Freddie Mac loans.
The process is as simple as possible. The PRBC collects the
credit data and credit resellers' on-time payments for the
following bills currently not reported to the traditional credit
bureaus. These become trade lines on the PRBC report: Rent, cable,
phone, daycare, insurance, electric, natural gas and cell phone.
Generally, these bills are only reported to the other credit
bureaus if the payments are late.
PRBC isn't like the big three credit bureaus that compile and
distribute credit reports based on debt payments on credit cards
and loans. Instead, the PRBC allows you to enroll yourself and
report your own payments. The PRBC report is also different because
there's no fee to view your payment history.
On May 15, 2008, PRBC partnered with Fair Isaac Corporation to
offer a FICO Expansion Score that scores your credit risk based on
your bill payment history. This Expansion Score is very similar to
the FICO score that scores based on information on your credit
report from the big three credit bureaus. The score ranges from 300
to 850, with higher scores given to consumers who pay their bills
on time. While the FICO Expansion Score isn't yet available to
consumers, lenders can access it to approve credit-based
applications.
Two large mortgage lenders, Countrywide Financial Corporation
and Citigroup Inc., are now partnered to help thin credit-filed
consumers build their own credit files based on non-traditional
payment types. With a volume of 425,000, PRBC is becoming a major
player; I can see the changes in the three major repositories to
capture more of PRBC's market. On June 11, 2008, FICO teamed up
with Equifax, a company it had been suing in an anti-trust lawsuit.
Now they will work together to develop and sell credit analytics
and scoring solutions for businesses and consumers.
Use of Federal Housing Administration (FHA) loans has gone
dramatically upward. On July 14, the new FHA risk-based pricing
went into effect. This should be advantageous for the PRBC. This
will almost eliminate the consumer without credit, and PRBC could
provide the score. The PRBC report is available through many credit
report resellers. The FHA has mortgage insurance premiums, and they
are all but eliminating scores under 600. The goal here is for the
FHA to push to refinance more sub-prime borrowers and, at the same
time, have these loans go to the more credit-worthy borrowers. I
feel they will require the alternative credit histories as a
requirement in lending in the near future.
John J. Hudock is president of The International Credit Club
and The World of Credit, two companies specializing in credit
report problems and scores. He also has online continuing education
courses on credit approved by the Pennsylvania Department of
Banking and the Pennsylvania Department of Continuing Legal
Education. John can be reached at (877) 829-5432 or e-mail
[email protected]. He invites e-mails on
any credit topic, will answer each one and publish any that will
benefit his readers. Please be specific with your
questions.
