By Kenneth R. Harney
Saturday, October 1, 2005
Picture yourself in this situation: Three years ago, you had a serious medical problem, couldn't earn money for months and fell behind on your bills. Your credit scores plummeted and have remained depressed ever since -- even though you have paid your rent, utilities, insurance, cable and other recurring bills on time every month.
Your low credit scores -- hovering in the mid-500s on Fair Isaac Corp.'s FICO scale -- now prevent you from obtaining a mortgage or other form of major credit at a reasonable interest rate. Mortgage lenders quote you 8.5 percent to 9 percent in a 6 percent market. Auto lenders want to gouge you with rates of 15 percent or higher. Credit card companies either don't want to know you or want to slap you with fees and rates more appropriate for deadbeats. Even insurance companies demand higher premiums because of your credit scores.
Yet the fact is you are not a deadbeat. Your landlord could attest to that. So could the electric company, the gas company, the telephone company, and maybe a payday lender you have used occasionally and repaid ahead of deadline.
The problem is that nobody asks your landlord about you, nobody asks the telephone company, nobody asks small lenders. None of your sterling on-time payment performances get reported to the three national credit bureaus, Equifax, Experian and TransUnion. That is why your FICO scores are stuck in "subprime'' territory, where everything costs you more.
Millions of Americans experience similar problems every day. Either their national credit files are incomplete or their credit scores are kept artificially low because their main credit-related activities go unreported.
But that is about to change. More than 150 independent credit-reporting companies across the country will soon begin offering mortgage lenders, brokers and other creditors a way to more accurately evaluate your full credit profile, including all or most of your bill-paying performances that never appear in your national credit files and never are incorporated into your FICO scores.
The National Credit Reporting Association, the principal trade group for smaller, regional credit agencies, is teaming up with PRBC, a national credit bureau that specializes in collecting and electronically updating "nontraditional'' credit history information, to offer a new breed of credit reports and scores.
PRBC was founded in 2002 under the name Pay Rent, Build Credit Inc. Now its data collection extends far beyond rent and includes alimony and child-support payments, as well as small-business loans, payday loans, telephone bills, and gas and electric charges. PRBC turns a nontraditional credit record into a "BPS''-- bill-paying score -- that lenders can use to supplement FICO.
BPSs give cumulative points for on-time monthly payments for periods of one to three years, and they range into the high 600s. As an add-on to a traditional credit bureau file and FICO score, a high BPS could cut your mortgage-rate quotes and fees dramatically.
Under a new agreement taking effect in early October, National Credit Reporting Association member credit agencies that specialize in home mortgage credit reports will be able to assist mortgage brokers and lenders whose loan applicants' credit scores are artificially depressed because of unreported on-time payments. They will be able to input rent, utilities and a long list of other account payments -- checked and verified by the credit agencies -- to PRBC's electronic data repository, based in Annapolis.
Consumers who have paid their bills on time will have their Equifax, Experian and TransUnion credit reports upgraded to reflect their performances. Lenders will also be able to order PRBC credit history reports separately and to access applicants' BPS scores. They will then be able to adjust their rate quotes and fees accordingly.
Under the federal Equal Credit Opportunity Act, lenders using national credit-bureau data must give consideration to credit-performance information that loan applicants can document from credit accounts not included in national bureau files.
Terry Clemans, executive director of the National Credit Reporting Association, estimated that "more than 70 million Americans make rent, mortgage and other recurring bill payments that are not reported to traditional credit bureaus.'' As a consequence, Clemans said, such consumers "often have lower credit scores than they should and pay more for housing, credit and insurance than they deserve.''
Mortgage applicants who think they might get a fairer deal by including their otherwise unreported payment histories to their lenders can get basic information on how to do it at http://www.prbc.com/ . Mortgage brokers, real estate agents and banks that think clients might benefit should talk to their independent credit report vendor for details. Cost to the loan applicant generally should be no more than standard mortgage credit reports, or may be paid by the lender or broker.
Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.