‘Full-picture’ reports give better credit where it’s due

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 -- despite the fact that you’ve paid your rent, utilities, insurance, cable and other recurring bills on time scrupulously every month.

Your low credit scores -- hovering in the mid-500s on the FICO scale -- now prevent you from obtaining a mortgage or any other form of major credit at a reasonable interest rate. Mortgage lenders quote you 8.5% to 9% in a 6% market. Auto lenders want to gouge you with rates of 15% 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 that 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’ve used occasionally and repaid ahead of deadlines.

The problem is that nobody asks your landlord, nobody asks the telephone company, nobody asks small lenders about you. None of your sterling on-time payment performances get reported to the three main national credit bureaus -- Equifax, Experian and TransUnion -- and that is why your FICO scores are stuck in subprime territory, where everything costs you more.

Millions of Americans experience variations of this problem every day. Their national credit files either are incomplete or their credit scores are kept artificially low because their main credit-related activities go totally unreported.

But that is about to change in a big way. 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 Assn., 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 kind of “full picture” credit reports and scores.

PRBC was founded in 2002 under the name Pay Rent, Build Credit. Its data collection efforts now extend far beyond rents and include everything from alimony and child support payments to small-business loans, payday loans, telephone bills, and gas and electric charges, among others. PRBC turns nontraditional credit records into “BPS” scores -- bill-paying scores -- that lenders can use to supplement or enhance mainstream FICO scores.

BPS scores give cumulative points for on-time monthly payments for periods of one to three years, and 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, NCRA-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 non-reported 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 themselves -- to PRBC’s electronic data repository based in Annapolis, Md.

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.

NCRA’s executive director, Terry Clemans, 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 non-reported payment histories to their lender can get basic information on how to do it at www.prbc.com.

Mortgage brokers, realty brokers and banks that think clients might benefit should talk with their independent credit report vendor for details. The cost to the loan applicant generally should be no more than standard mortgage credit reports, or it may be paid by the lender or broker.

Comments for Kenneth R. Harney can be sent to kenharney@earthlink.net.