Building better renters

We all know the adage, "It takes money to make money." But it takes credit to do just about everything else. With personal information available instantly via the Internet, a mobile phone account, a home mortgage or car loan and, sometimes, even an apartment can be unattainable for people with little or no credit history with one of the three big reporting agencies, Experian, Equifax and TransUnion.

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Potential renters that fall into that category, sometimes referred to as the thin or no-file market, include echo boomers, who recently graduated high school and are entering college, a burgeoning Hispanic market and other immigrant populations.

But many in the group that is estimated at around 50 million are solidly employed, make regular bill payments using cash, check or debit cards for point-of-sale transactions, and represent a huge potential renter demographic for apartment owners.

Annapolis, Md., based PRBC, an alternative credit reporting agency founded in 1997 by Michael G. Nathans and incorporated in 2002 as Pay Rent Build Credit Inc., helps consumers build a payment history with rental, utilities, insurance and other on-time bill payments that, in turn, can help apartment owners more accurately assess the risk of renting to an applicant without a traditional credit file.

The novel credit reporting agency uses consumers’ bill payments to create a PRBC report and a weighted score card that can show a consumer has paid his or her bills on time for up to the past three years. PRBC maintains all participants’ bill payment histories for seven years.

PRBC places the greatest scoring emphasis on lease or mortgage payments. “My view is that renting has many advantages, although it gets criticized by a lot of people who say you are just paying someone else’s mortgage and not building equity. But many people prefer to rent some time in their lives and building credit like a homeowner who is making a mortgage payment should be one of those advantages, because a rent payment is for essentially the same thing as a mortgage–housing,” said Nathans, who began his career as a broker with Sterling Investments selling large apartment buildings in the early 1980s to tax shelter syndicators, condo converters and rehab specialists, before moving on to the property management and ownership side.

He survived the savings and loan crisis of the late 1980s and wound up working with HUD’s portfolio of defaulted single-family loans, as both a purchaser working with a large Wall Street firm and a private equity firm, and later as an advisor to HUD on the sales side.

“Then I went to work for Price-waterhouseCoopers. But before that I started a tenant screening company for landlords that got me familiar with credit reporting and opened my eyes to the lack of rental reporting to the bureaus,” he said, adding that there are 35 million apartment renters in the U.S. today and the chances are minuscule that the majority of those payments are in anyone’s data base.

“But there are a lot of other bills that people pay that don’t get reported. What we went into this business to do was not to just collect rental payment data, but all bill payment data that aren’t reported to the bureaus and then merge their PRBC files into their bureau reports to give leasing agents and lenders more accurate scores,” said Nathans, who recently changed the company’s name to Payment Reporting Builds Credit, preserving the PRBC acronym.

Consumers enroll themselves and begin building their credit file online with PRBC by creating a user name and password. They can view that file whenever they want for free, but PRBC charges $20 to verify rent payments and $15 to verify other payments like car insurance, renter’s insurance and utility bills. “The only time a consumer pays is when they list bills that they say they’ve paid in the past and paid on time. We then charge them a fee to actually verify that it’s true and we do a rigorous job of verifying to Freddie Mac, Fannie Mae and FHA and we exceed their standards. So the consumer walks away with a bureau file they can use under federal law–the Equal Credit Opportunity Law section 202.6,” said Nathans, who then sells the information to creditors.

Apartment managers can sign up to check the payment scores of potential renters and automatically record rent payments. Although Nathan expects the bulk of PRBC’s information will come from banks because millions of residents already pay their rent, utilities, insurance and other monthly bills online via bank Web sites, he believes that leasing agents who offer renters the ability to build a credit file with PRBC as an amenity have a competitive leasing advantage in the market.

More importantly, the renter now has a valuable incentive–that of building credit–to pay his or her rent on time, because those payments are being reported to the big three credit bureaus.

PRBC last November began working with Fair Isaac Corp, creator of the FICO score, to deliver to lenders PRBC’s credit report and Fair Isaac’s FICO expansion score, a new credit risk score that can be used to assess the risk of applicants who have little or no traditional credit history. FICO Expansion uses non-traditional credit data to create a score that aligns with the FICO credit rating used today by most mortgage lenders, using the same 300-850 range.