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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 breakdown of the different types of scores.
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Types of scores |
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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 2006. "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
support 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 support 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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