Bad FICO? Here's Three Other Credit Scores That Can Help
FICO score isn't the only credit score game in town. That's good news for people who have low scores thanks to being an immigrant, divorcee, or don't have the means to acquire the credit in the first place. It's one of those quirks of the system. To get credit, you have to have a credit history. To get a credit history, you need to be able to get credit. Thusly, some people find themselves a bit stuck. To meet the needs of these these "thin credit file borrowers", some alternatives to the standard FICO score are out there. Let's look at three.
PRBC
PRBC, formerly named "Pay Rent, Build Credit," is an Annapolis, MD startup that let's people self-report information about their credit. Through PRBC, you can record your rent payments, loan payments, and even payday loan payments. It's an alternative for those who have very little credit history ("thin credit file") such as new immigrants or recent divorcees. Since the principal aim of a credit score is to determine the credit-worthiness of a borrower, i.e. how well they can pay back loans, a long track record of on-time rent payments would be helpful to know (currently not tracked by standard FICO). PRBC would be of limited value if it only stood on its own, fortunately in November of 2007, Fair Isaac announced that the PRBC credit report would be included in the FICO Expansion Score.
VantageScore
VantageScore is a collaborative effort by the three major bureaus to create a competing credit score model. Unveiled in the spring of 2006, it tweaks an already customizable equation (each bureau weighs the factors of the FICO score equation differently) and slaps a new name on it. Whereas the FICO score ranges from 300 to 850, VantageScore ranges from 501 to 990 - everyone's score is automatically higher! In reality, since the score is derived from the same data, you only need to focus on making sure the bureaus have complete and accurate information.
FICO Expansion Score
The aim of the expansion score is to "look at non-traditional credit data" to help determine credit worthiness. Again, if you're in that "thin credit file" group, then this expansion score is important because it collects data from non-traditional sources. The score has the same range as the standard FICO score, 300 - 840. The downside of this expansion score is that since credit reporting is entirely voluntary, there's no guarantee that your rent payments are being reported to Fair Isaac. In fact, unless you know your landlord is reporting data through PRBC (or if you are reporting it yourself and then having it verified), it probably isn't being reported.
If you have a low score with the standard FICO model, you'll likely have a low score using any other calculation. These alternative scores won't be able to magically turn a 400 into an 800 (what do you think they are, investment bankers?), but they can give a more accurate picture of a borrower who has very little information reported about them to the bureaus.
Jim writes the blog Blueprint for Financial Prosperity.
(Photo: Getty)
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I have always firmly believed that rent payment history should be a heavily weighted determinate for giving mortgage loans. I don't see why a person who has maintained timely rent and utility payments, who does not have significant current debt (what does the unpaid credit card from college or the medical bills from a broken leg three years ago really have to do with your current financial situation?) shouldn't be granted a home loan. A person who has never been late on the rent payments should likewise never be late on the mortgage, providing the monthly mortgage payment isn't too far past the amount of their average last year's rent.
We went for a couple of years with no loans but we paid our utilities and rent on time. Our credit scores were considerably lower than any other time, including right after filing for bankruptcy years earlier. WTF. Nothing like being punished for living within your means.
I hope this expanded reporting of other things like rent continues.
These scores aren't useful though until lenders use them. No matter how silly the current system is or how great these concepts are, until your common lender thinks they should break out and start looking at other things, the current system is the game that has to be played.
840 or 850?
@JamieSueAustin: Hence, another problem with the current system: how do they know if your proposed mortgage payment isn't too far past your average rent? Trouble is, most landlords don't report.
The other problem is, that none of these systems take into account for income. You could have $10,000 worth of credit lines available and $7,500 debt and be considered a huge risk -- even if you make enough money to pay off that $7,500 every week. Employers definitely do not report income.
@numberoneasa: Agreed, until you can convince someone to use your PRBC score, maintaining your file doesn't get you much.
Bad Grammar? Here's a tip that can help.
(Here's three = Here is three)
Here ARE three.
That one KILLS me.
@numberoneasa: Lenders were starting to on a limited basis during the mortgage boom. I worked for a company that prepared credit reports for mortgage companies and we did some non-traditional reports that were accepted by certain lenders. My guess is they don't anymore.
Are there gonna be any REAL posts anytime soon, and not just paraphrasing of other people's articles? I think people tend to enjoy the real consumer stories the most, just FYI.
There is a way to use your rent to build credit, although it won't be popular because it costs money...
You could pay your rent with a credit card cheque, and then pay the credit card company the rent each month. Of course, then you're paying your APR on top of your rent, which isn't going to be good, but it would show several thousands of dollars of good debt on your report each year.
It's too bad there's not a similar service out there, except if it worked in some sort of reverse manner (ie: You pay them first, then they pay your landlord) it would allow them to collect interest on your money, which would allow them enough money to operate.
But hey, those are crazy ideas. :D
Also, FICA actually rewards less responsible behavior. There is no doubt in my mind that buying a car cash and never buying on credit is more responsible, yet FICA rewards people who go in debt for cars and consumer goods. This perverse incentive may have contributed to the high consumer debt - the credit card was originally taken out to create a credit score, creating debt the otherwise never would have happened.
If you're a recent immigrant trying to get a credit card and you have a credit report from your former country, you can usually post that report to the credit card company as evidence of your credit worthiness (call up their applications line and ask if you can send extra evidence) and they should then give you a card though perhaps with a slightly lower limit.
@Coles_Law: According to PRBC's FAQ, they don't charge landlords to report payments.
Renters who want to self-report payments have to pay a $20 "verification fee" which apparently covers several months of payments.
The problem is that if you have bad credit you're going to have a bad credit score regardless of the brand. There are several hundred other scoring models not mentioned and all are based on the same credit file performance as the standard FICO score. Payment, debt, inquiries, age of credit and credit mix isn't a secret that only FICO is aware of.
And the PRBC report is a self reported file that a very tiny handful of lenders will accept and, even then, they get a standard credit file when possible. Reason? Self reporting means that the consumer isn't going to self report their non-traditional credit accounts unless they're good. Lenders know this.
The best remedy is to find out WHY your FICO scores aren't better and set up a plan to improve them through solid credit managment. Then you don't ever have to worry about FICO, Vantage, TransRisk, ERABM, GRAM, Delphi, BNI, or any of the other credit scoring models being used by lenders and insurance companies.
It's good to see alternatives to standard credit scores, particularly for low-income types without a chance to get credit through standard means. More options = better.
It’s good to see alternatives to the FICO monopoly. People at the bottom of the credit totem should be able to use what’s available to them to build their credit. When payday and title loans are the only credit available to people, they should be able to use these loans to show they are credit worthy. Any report that includes that is a step forward to help folks rebuild their credit.
Very informative article. One question though-does PRBC charge any fees to the landlord/renter for its service, or is the only cost the time in reporting? It's always a good idea to know exactly how a company makes money (or loses it, as the case may be).