New credit scores

Lenders use credit scores to make decisions about loan applicants. Utilities, telecom providers and other businesses whose services require regular, ongoing payments may also check credit scores before providing service to consumers.

Traditional credit scores are based on:
  • How much outstanding debt you have.
  • Your repayment record on credit cards, retail accounts, installment loans, finance company accounts and mortgages.
  • The length of time you’ve had credit.
  • The types of credit you currently have.

The three national credit bureaus each use slightly different systems. Equifax calls its the Beacon system, TransUnion has the Empirica system and Experian has the Experian/Fair Isaac system. Each is based on the original scoring method developed by Fair Isaac Corp. (FICO) and produces equivalent numerical results for any given credit report.

Yet as many as 50 million consumers -- especially new immigrants, young people and women who have been recently divorced or widowed -- aren’t in the credit bureaus’ files because they lack traditional credit scores. As a result, they may find it difficult to establish their credit worthiness and may be shut out of today’s credit economy. They may have difficulty buying a house, obtaining a credit card or gaining approval for other financial transactions.

Traditionally, credit reporting agencies have not tracked or scored payments of commonly recurring bills such as rent, private mortgages, utilities, telephone, cable TV, child care and payday advances. But new measures of financial reliability may soon help those who lack a traditional credit score to establish a foothold in the mainstream, credit-driven economy.

FICO has developed the FICO Expansion score, which takes into account your broader financial history, not just your credit history. The new FICO Expansion Score is based on such things as:

  • Deposit account records
  • Payday loan repayments
  • Purchase payment plan performance
  • Other non-traditional credit data

The Expansion Score does not directly include rent payments, though lenders that request such data from potential borrowers can give it to Fair Isaac to work into the score. 

Fair Isaac obtains the information from specialized credit bureaus and then uses it to come up with a FICO Expansion Score.

A few large lenders are currently testing the expansion score and Fair Isaac expects it to eventually catch on as a standard tool lenders will use to check loan applicants who lack a standard credit history.

Consumers without a traditional credit history should therefore be careful to pay all their bills on time -- that includes not just credit bills but also the rent as well as phone, cable and utility bills.

If you find you don’t have a standard FICO score, you can check to see if an Expansion score is available by calling Fair Isaac Corp.

Another innovative new credit reporting agency is PRBC (“Payment Reporting Builds Credit”). It produces a Bill Payment Score (BPS) that can be used to supplement a traditional credit score, or be used in the absence of one to gain a more complete and accurate risk assessment of an applicant.

PRBC’s Bill Payment Score is based on:
  • Rental payments
  • Other recurring bill payments

PRBC is the first credit bureau to allow consumers to build credit scores with rental payments, as homeowners do with mortgage payments.

You can report your payment data to PRBC in three ways:
1. Electronically through a bill-payment service associated with a bank.
2. Entered manually on the PRBC Web site, provided it has a paper trail that can be subject to third-party verification.
3. Bill collectors or service providers can report the data to PRBC through a credit bureau.

The Community Financial Services Association of America (CFSA), a national association representing 164 companies with more than half of the payday advance locations nationwide, has begun a program in Illinois to help short-term borrowers build credit by voluntarily reporting your repayments of payday advances to PRBC.

Consumers who take part will be able to ask mortgage lenders, auto lenders and insurance companies to take your Bill Payment Score into consideration when you apply for a loan.

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