I would like to share some good news for the estimated 50 million consumers that have no credit rating or a limited credit history. There is now a viable option for establishing credit outside of the traditional avenues. The National Credit Reporting Association (NCRA)--a trade group representing small regional credit agencies--in combination with an organization known as Payment Reporting Builds Credit (PRBC) has created an alternative credit score tracking and reporting service for consumers.
This service includes in its credit score calculations (in addition to the normally included credit criteria, such as credit cards, auto loans and mortgage payments), portions of consumers credit history which are very often positive (for example, rent, phone, water, heat, and other utility bills, small business loans, alimony, child support, payments), but are generally not included in the credit reports from the large national consumer credit reporting bureaus (Experian, Equifax, Trans Union) nor is used by the largest credit score provider--Fair, Isaac Co. (FICO)--in calculating credit scores.
The alternative, nontraditional credit records compiled by PRBC are turned into a "Bill Paying Score" (BPS), which creditors can use as an adjunct to enhance a consumer's traditional credit report and FICO credit score when analyzing the consumer's application for a loan. And note: under federal law--specifically, the Equal Credit Opportunity Act--creditors who use national credit bureau information when analyzing a loan application must also consider other credit information not provided by national credit reporting companies, which the consumer can provide and document (such as a BPS from PRBC).
This is especially helpful to consumers who have had credit issues in the past; they may have little inclination to take on new revolving and consumer debt because they want to stay out of trouble. While this demonstrates smarter money management, it isn't helpful for creating a new credit history with the three major credit reporting bureaus.
Credit applicants who are declined because of insufficient credit history or who feel that the addition of positive but unreported trade lines can result in a favorable underwriting decision should provide a BPS and ask creditors to reconsider their applications. Home loan applications declined by automated underwriting programs can be re-evaluated by underwriting personnel, and by law, additional credit data such as that provided by a BPS must be considered.
For more information on acquiring a BPS and related services, contact PRBC. Please note that fees do apply. Also, as a reminder, some credit and prepaid cards also offer attractive ways to establish or rebuild credit with the three major credit bureaus. Good luck on improving your credit standing!
You can also visit our Free Credit Score section for more information on credit reports and scores!