First-time home buyers -- and the Realtors who work with them -- are getting an important new national credit-building resource: The first credit bureau focused solely on compiling credit histories using data that the three dominant national bureaus don't track -- rent, utilities, insurance and other monthly payments.

The new bureau, dubbed PRBC (PayRent, Build Credit), is headquartered in Annapolis, MD and run by a team of risk assessment professionals headed by CEO Michael Nathans. The bureau expects to compile "alternative" credit files on up to 10 million American tenants within the next 60 months.

PRBC is an effort to help low and moderate income, young, minority and immigrant consumers demonstrate creditworthiness, according to Nathans. All of these groups frequently have trouble qualifying for prime-rate mortgages and other credit because their national files tend to be "thin" -- there's not a lot of payment history data on them. They may have minimal or no relationships with traditional banks. They may not have a credit card or charge accounts that show up in their national credit files maintained by Equifax, Experian or Trans Union.

As a result, their credit scores frequently are lower than they actually deserve. Fair Isaac & Co.'s popular FICO credit scoring software cannot even generate a score if a consumer has minimal information on file with the three big bureaus. Yet on-time rent payments -- especially over an extended period of time -- are highly predictive of future payment behavior on a mortgage, according to Fair Isaac officials. The problem, they say, is that nobody is collecting or maintaining much data about rent payments.

PRBC is designed to fill that gap. It allows consumers to register and report their verified payment histories to landlords and other accounts, either by directly entering them online at the website, or by instructing their banks to report payments made through electronic bill-paying services. PRBC has also contracted with PayPal, an online payment service, to report payments made by consumers who choose to use it.

The new bureau is expected to be particularly useful to realty agents and nonprofit groups who work with minority and immigrant populations to promote homeownership. The Harvard Joint Center for Housing Studies estimates that minority and immigrant purchasers -- who often have nontraditional credit histories -- will be at the cutting edge of new home buying during the balance of this decade. Any resource that helps create proof of creditworthiness for these consumers will open the doors to them for home buying -- at market interest rates rather than subprime.

"Our view is that to be considered part of the financial mainstream, you've got to pay your bills on time," said Nathans. "But if (those payments) are not being tracked" by credit bureaus, they can't help consumers demonstrate that they are good credit risks.

"So we are providing a way to do so," said Nathans.

Though it only took in its first consumer registrants in December, PRBC already has begun signing on large mortgage clients who seek to expand their lending to minority and immigrant groups. CitiMortgage, Inc., one of the country's largest-volume mortgage originators, is a charter subscriber. "Many" other large lenders and banks are negotiating contracts to obtain credit reports -- or to supply payment data -- to PRBC, according to Nathans. Subscribers expect to use PRBC's reports as "supplements" to the reports they get from the big three bureaus.

The new credit service is free to consumers, but lenders will have to pay for reports they order on loan applicants. Consumers will have free access to their private files online 24/7, said Nathans. And no data on a consumer will be released to a lender without explicit permission of the consumer.

Published: January 12, 2004

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.