An important new resource for Realtors and lenders becomes available today: Home buyers with "thin" credit histories or artificially-depressed Fair Isaac (FICO) credit scores can now obtain alternative credit reports and scores based on their on-time payments to landlords, utilities, cable companies and other recurring accounts not included in national credit bureau files.
The new reports and scores will be available through 150-plus independent credit agencies who are members of the National Credit Reporting Association (NCRA). They are often the regular vendors of credit reports for mortgage brokers and banks across the country. NCRA has joined with the only credit bureau that specializes in collecting and electronically maintaining consumers' "alternative" account data -- PRBC, Inc., based in Annapolis, MD -- to offer the new service starting Oct. 3.
PRBC takes rent, utilities, cable and even child support and payday loan account information, has it verified independently, and compiles credit reports and scores based on data uncollected by the "big three" bureaus -- Equifax, Experian and Trans Union. The scores and reports are then used by lenders to more accurately evaluate mortgage applicants who either have minimal banking account histories, or whose traditional FICO scores simply do not reflect their extensive on-time payments to landlords and other monthly accounts.
The new service is expected to be particularly useful to young and minority home loan applicants, many of whom have FICO scores that force them into costly subprime mortgages at high rates and fees. Under the federal Equal Credit Opportunity Act, lenders who access national credit bureau data to underwrite mortgages are required to look at supplementary information not contained in the bureau files that may shed light on applicants' creditworthiness.
Under the agreement between NCRA and PRBC, regional and local credit agencies will be the exclusive "verifiers" of account data supplied to PRBC by consumers. When asked by a mortgage broker or lender client to run a credit check on a mortgage applicant, the credit agencies will first pull the applicants' national bureau files and FICO scores. If the scores are too low to qualify for the loan the applicants need to buy a house, the lender or broker will then ask about rent and other payments that are not reported to the national bureau databases.
If the home buyers say they can document a year or more of on-time payments for rent, utilities, cable and other accounts, the NCRA-member credit agency will then verify the information directly with landlords and other sources.
"It's what our members do everyday" in connection with mortgage credit reports, said Terry Clemans, executive director of NCRA, "so it's no stretch for them to do it" here. After checking out the data, the credit agency and PRBC will then be able to supply the mortgage loan officer with an "enhanced" full-picture credit report including verified accounts not contained in the national bureau files.
PRBC will supply its proprietary "BPS" (bill-paying) score, which lenders will be able to use to raise FICO scores. BPS scores award cumulative points for on-time monthly payments for periods of one year to three years, and range into the upper 600s. With the additional information and score, a home buyer loan applicant with a FICO in the mid-500s, for example, might be able to have that number raised well into the 600s, and qualify for a significantly lower interest rate and fees.
"The idea is to give full credit, to be fair, to people who are good credit risks but just happen to make their on-time payments to creditors who don't report to the (national) bureaus," said Michael Nathans, CEO of PRBC.
More information on the program and organizations behind it can be obtained from PRBC directly or from NCRA . You can also call 630-539-1525.
