Statistics show that millions of Americans are underserved by the banking industry in general. This is because they have troubled or extremely limited histories of successfully borrowing on things like credit cards, student loans, and auto financing. That, in turn, makes it so they either have no access to credit, or can only tap credit with extremely expensive rates and high fees.
It's one thing for lenders to be cautious when people have exhibited difficulty related to paying credit cards and other such bills on time each month, even if the extreme financial difficulties brought on by the economic downturn are to blame. However, financial experts have long said that the ways in which a person handles credit – and credit alone – may not be the best indicator of their overarching financial wherewithal.
What's the issue?
When people have a number of bills to pay and extremely limited finances, they're likely to prioritize non-credit items. That includes paying the rent so they don't lose their homes, or paying utilities bills to keep the lights on. It makes perfect sense why they would do this, of course, but it also makes for some difficult times related to maintaining good credit standings if they can barely afford to cover more essential costs.
That disconnect between what makes sense for consumers and what makes sense for their creditors can nonetheless wreak havoc on people's finances overall. This is because credit history is used not only to make credit decisions, but also when it comes to things like setting prices for auto or home insurance, and even as it relates to being able to qualify to get a new cellphone service provider.
Where PRBC comes in
With all of this in mind, PRBC has developed a credit scoring model that takes into account not just how people have handled their debts, but also how well they've been able to keep up on other monthly payments including rent and utilities. In fact, PRBC actually stands for, "Payment Reporting Builds Credit." And because of this, consumers who might have missed credit card payments in the past, but who have successfully kept up with paying their other, more necessary accounts on an ongoing basis are likely to see their standings improve significantly.
However, alternative credit scores, as they're called, can also be beneficial to people who have limited or non-existent credit histories, as it may be able to help them build their positions well enough that they would be able to get an affordable account that would further allow them to improve their standings.
This is the kind of thing that financial experts believe may be vital to the future of credit reporting as a whole, as it could help to bring millions of financially capable borrowers into the borrowing ecosystem once again. That, in turn, would potentially improve the credit health of the nation overall, with some believing this could happen to a significant extent.