Non-Traditional Credit Scoring: Wot’s All This, Then?

In order to present mortgage lenders, et al, with a better-rounded picture of consumers, are companies like Atlanta-based RentBureau, unique in the market as one of the first real-time, online system providing apartment owners and managers with accurate rental histories of applicants.  “Effectively,” said Chief Executive Officer Harold Solomon, “we’re allowing people to build a good, solid credit history simply by paying their rent.”

It’s a system that could prove pretty influential.  Every 24 hours, RentBureau collects rental payment information from owners and managers in its network.  This data is immediately integrated and made available to participants through a secure, proprietary online database.

Of course, economists, financial analysts, and collectors in the accounts receivable management industry give conflicting opinions regarding what are known as “unscorables” in the market.

“Traditional ways of establishing credit history are still the best,” wrote MSN Money financial advisor Liz Pullman-Weston.  “They'll cost you less and ensure you access to a broader array of potential creditors.”

There are also questions as to what effect including non-traditional items like rent, job history, and bill history into a credit history will have on the accounts receivable management industry.  “From a debt purchasing perspective, an artificially high score might make a portfolio seem more attractive, and could raise the price higher than what it should be,” said a poster on insideARM.com’s discussion forum.  “For buyers (or even sellers) that rely heavily on a score-based portfolio analysis, I could see where that might bring trouble. After all, most debtors will continue to pay their rent even though they pay nothing else -they have to have a roof over their heads.”

Traditionally, there is a hierarchy in regards to what and when consumers will pay debts.  Debtors will often forgo credit card payments and medical bills to pay rent and utilities.  Solomon sees this as an unfair dichotomy, though.  “The numbers, of course, need to be taken into context.  You wouldn’t use someone’s rental history to see how they’re going to pay on their Visa card necessarily.”

The non-traditional credit scoring industry is still finding its legs and trying to establish inroads with the Big Three of credit reporting: Experian, TransUnion, and Equifax.  Yet now, with the housing bubble dissolving into a soapy mess, might be the time when non-traditional credit scoring stops seeming so, well, non-traditional, and starts being part of the mainstream.