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If you've been rejected for a
mortgage or other loan because of a bad FICO score, don't despair. New forms of
credit scoring use your payment record on utility bills, rental units and payday
loans to assess your ability to repay loans.
An estimated 50 million consumers
are locked out of access to credit because they lack the credit history needed
to generate a decent FICO score. The FICO score estimates your ability to repay
based on your past credit history as detailed in traditional credit reports.
Fair Isaac Corp., the company that pioneered this
form of credit scoring, produces the FICO score and is offering
one of the new credit scores, which it calls the FICO Expansion
score. Along with other players in this rapidly expanding market,
Fair Isaac hopes to attract lenders eager to expand their customer
base.
"One
of the problems for people who don't have good FICO scores is the collection of
enough positive data to make the score an effective predictive tool," says
Tena Friery, research director of the Privacy
Rights Clearinghouse, a California-based consumer advocacy group. "Estimates
are that 50 million consumers are affected by a lack of credit history, so this
score has the potential to give people the chance to own a home who otherwise
wouldn't be able to get into the market." The
various scores
Because of Fair Isaac's status as the 800-pound gorilla in the credit
scoring market, the FICO Expansion score has a built-in advantage
over the other types of scores. Here's a score card:
- FICO
Expansion Score
Drawing on alternative credit data such as bank account
records, payday loan payment records and installment purchase plans, Fair Isaac
produces a credit score that is modeled on the traditional FICO score's 300 to
850 point range.
"In developing the Expansion
score, Fair Isaac analyzed anonymous alternative credit data
to statistically determine what factors are most predictive of
future credit performance," said Lisa Nelson, vice president
of business operations for Fair Isaac in an appearance before
the House Financial Services Committee in May. "Factors that
do not have predictive value and factors that by law cannot be
used in the credit decision are excluded from consideration."
- PRBC
PRBC, which stands for Payment
Reporting Builds Credit, turns the traditional credit scoring
model on its head, offering consumers the chance to proactively
build a credit profile through tracking their payment history
in such areas as rent, private mortgages, phone, utility, insurance
premiums and child-care payments. Consumers can sign up through
AccountNow, a partner with PRBC and arrange to have their bills
paid through this service. All payments will automatically be
forwarded to PRBC and be included in your credit profile. There
are fees involved to enroll in the AccountNow Vantage MasterCard
program, which is part of the AccountNow service.
- Anthem
Score
Developed by First American CREDCO, which processes and distributes
credit information on consumers, the Anthem score is similar to
the FICO Expansion Score. The Anthem score is a two-tiered score:
The first score comes from First American's nontraditional credit
report; the second is a numerical risk assessment score. Scoring
is based on a consumer's history of paying rent, utilities, insurance
and child-care expenses. In building the risk score, Anthem takes
into account how long a consumer has been paying bills in a timely
fashion as well as what types of credit the consumer is using.
- eFunds
eFunds
is the parent company of the ChexSystem banking clearing house. The eFunds Debit
Report provides lenders with an overview of a consumer's check writing history,
check order history, account opening inquiries, deposit account collections and
any accounts closed for fraud or abuse.
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