by Michael Nathans, Guest Blogger
There are no ’silver bullets’ or ‘quick-fixes’ to building or rebuilding a good credit history. And for the underbanked-particularly those without a “traditional” credit file at Equifax, Experian or TransUnion-establishing creditworthiness without running out and getting a high cost credit card, auto loan, or mortgage, this is especially true.
However, meeting the challenge of helping the underbanked build a good credit history just might start with a verifiable rent receipt. And the way it works, is perfectly designed for credit unions (CU’s)-particularly community development credit unions that often offer services in underbanked communities. The service is designed to pay significant dividends to CUs and their members because of the cash savings it makes possible on auto loans and mortgages, utility hook-ups and phone service. Helping consumers achieve these cost savings translate into new members and increased loyalty for CUs and savings accounts and assets, as well as a credit history and FICO Expansion Score that could even qualify members for insurance discounts and new employment.
The service is called Payment Reporting Builds Credit (PRBC). The service can enable CU members to supplement (not replace) their so-called traditional credit reports and scores by building a credit file with FICO Expansion Score using the regular traditional monthly bills they pay– rent payments, private loans and mortgages, utilities, phone, cable, insurance, self-storage, rent-to-own, day care, and even regular deposits to a savings account (which have long been recognized by the FHA and GSEs as ways to determine credit worthiness) through a CU’s bill payment service and/or manually through the CU’s own web site. And it is specifically designed to be offered by financial institutions under their own brand identities on a private label basis to their customers.
Sounds great, right? Well it is and it can be especially beneficial to CU’s as they work to grow deposits and membership. After all, many community development finance experts have advocated for such a system for years and the concept has garnered considerable traction. And it not only sounds great but is sanctioned under the Equal Credit Opportunity Act, Section 202.6. The Act states that users of credit reports and scores MUST consider a credit applicant’s ’shoebox full of paper receipts’ or a report like the PBRC Report with FICO Expansion Score evidencing payments on accounts that they are responsible for (spouses can get credit for accounts listed only in the other spouse’s name too) in addition to those reflected in their Equifax, Experian, and TransUnion report, upon the applicant’s request.
Reviewing these additional documents does not only benefit the un- or underbanked, but it can greatly assist lenders, service providers, insurance companies and employers to gain a more complete and accurate picture of their applicants’ true creditworthiness by using this supplemental information, particularly with a FICO Expansion Score.
PRBC was founded as a for-profit with a social mission and was launched with a grant from the Ford Foundation and matching financial support from its private sector founders, Fannie Mae, Freddie Mac, Citimortgage and IBM. ACCION, Omidyar Network, Total Technology Ventures, Maryland Technology Venture Fund, Bristol Investments, and the Center for Financial Services Innovation have also invested in the venture and provide technical assistance to the organization.
The opportunity for CUs to capitalize on the PRBC service which has been designated as an “innovative and responsive community development service” under the Community Reinvestment Act, may be particularly ‘ripe’ in the current economic and regulatory environment. The service enables CUs to offer a legitimate and equal opportunity for both “thin file” and no-score, as well as “thick file” and low-score consumers to establish or re-build a good credit history and FICO score WITHOUT the need to go deeper into debt (or acquire new, high cost debt) in order to prove their willingness and ability to pay their financial obligations on time. Furthermore, CUs could beat banks that are subject to CRA regulation to the ’starting line’ by offering this service to their members,
Additional information and articles about PBRC can be found here.
Michael Nathans is an Executive VP for MicroBilt Corporation and the founder and Chief Development Officer for Pay Rent, Build Credit, Inc., dba PRBC® and Payment Reporting Builds Credit®, a national credit bureau. PRBC was launched to supplement automated underwriting and risk based pricing decisions using bill payment data such as rent, utilities, phone, and other commonly recurring monthly payments which are not measured via traditional credit reports and scores. During the five years prior to forming PRBC, Michael was a Senior Manager at PricewaterhouseCoopers in the Asset Securitization, Mortgage Banking, and Financial Risk Management Practice Groups based in Washington, DC. Michael has over 25 years of finance and risk management experience.
