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.