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New scoring tools empower credit weaklings

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.

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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.
Next: Consumers may rue the day that a lender relied on one of these scores.
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