HAMDEN, Conn. - Credit unions seeking to reach into non-traditional markets such as underserved communities often hit a hard roadblock in consumers who don’t have traditional credit scores.
But there are alternative means of building a “credit score,” according to one company that captures consumers’ history of paying rent, utility, and other recurring bills that aren’t reported to traditional bureaus. Introduced in late 2005 to work primarily with mortgage brokers, Payment Reporting Builds Credit (PRBC), a national credit bureau, says it sees an opportunity to help credit unions develop metrics for such scores.
PRBC CEO Corey Stone says that the usage of such data can turn consumers who have not had financial relationships in the past not just into members, but into long-term members.
For example, data on members who make payments using their credit union’s online bill payment option are captured and the payment activity is recorded with PRBC. That and other information helps the member to begin establishing credit that can help in getting a first credit card or a loan at a competitive rate.
Stone added that such data collection and modeling isn’t jut for underserved communities; it is also be an effective means of building credit for younger consumers.
“Take military credit unions,” Stone said. “Their membership is young and many don’t have a credit history when they join the CU. Here’s a way for the credit union to say we’re going to help you be financially responsible and in the process build a credit history that’s going to get you better loan offers at the best rates we can offer.”
CUs In The Driver’s Seat
Since members are building credit through the CU, the credit union is in the “driver’s seat” to offer additional products to members when they become good risks, Stone said.
PRBC charges what Stone called a “small” enrollment fee for each member using its services, but he believes most bill processors will absorb that expense. “Being able to build credit with online payment is going to encourage more members to use electronic payment,” Stone said.
In addition to helping members establish credit, PRBC also helps assess risk when making a loan decision on a member whose credit may be marginal. In this case, the CU and the member work with PRBC to record payment histories not reported to mainstream credit bureaus. The member logs the information into the PRBC website, which Stone said could be linked to through the CU’s website. PRBC validates the payment information, charging $15 per trade line and $20 per rent payment. PRBC can validate payments going back three years.
While PRBC reports come with their own payment score (100-1,000) that summarizes an individual’s payment history, the reports are designed to be used in conjunction with other credit data to determine the overall financial health of an individual. Stone said PRBC is also partnering with Fair Issac and incorporates PRBC data into Fair Isaac’s FICO Expansion Score, which aligns with the FICO credit score using the same 300-850 range.
The majority of PRBC’s business has been with mortgage brokers to streamline underwriting procedures when lending to individuals with little or no documented credit experience. The company’s interaction with CUs is just beginning, according to Stone, who chose not to disclose the CUs using its services, saying PRBC is piloting with a “handful of credit unions across the country.” Stone pointed out that PRBC does not sell mailing lists and trigger leads from its data. “We want credit unions to feel comfortable referring members to us without fearing that someone will poach that relationship.”
