Pay Rent Build Credit Inc. said it hopes the patent it received for its proprietary credit-scoring method, will help fend off some of the major credit bureaus trying to use similar systems to reach a growing market for credit data on underbanked consumers.
The Annapolis, Md., company announced the patent Monday for its method of determining a credit score by evaluating a consumer's payment history for such things as utility bills.
Michael Nathans, PRBC's chief development officer, said that he wants to create partnerships with the major credit bureaus, but that he needed the patent to protect his company's system.
"We want to partner with the bureaus so that they are not cut out, and so that we are not cut out either," but "it's our idea, after all, and we are in the business to make money," he said. The patented technology was "about helping consumers build credit with bills they pay."
Consumers with no credit history can receive a free report from PRBC by submitting their history of bill payments. Consumers with some credit history are also eligible for a report developed by the three major credit bureaus - Equifax Inc., Experian Information Solutions Inc., and TransUnion LLC - from information that PRBC provides to the bureaus.
Lenders can purchase PRBC credit reports for $20.
Jennifer Tescher, the director of the Center for Financial Services Innovation, said PRBC's patent is narrowly focused on bill payments. "The whole point is that it is not credit data - its just other info that gives insight" about consumers financial history. The center, an affiliate of ShoreBank Corp. of Chicago that works to improve underbanked consumers' relationships with financial services companies, has a minority stake in PRBC.
Other bureaus offer similar scores. Fair Isaac Corp.'s FICO Expansion score measures consumer credit using payments for phone bills, magazine subscriptions, and other nontraditional metrics. First American Corp. of Santa Ana, Calif., offers a similar scoring metric called Anthem.
Mr. Nathans said that unlike his system, those scoring methods do not allow for self-reporting or serve as data repositories.
A March report from the Center for Financial Services Innovation found that financial services companies are turning increasingly to the estimated 70 million underbanked U.S. consumers to boost their credit card and mortgage businesses.
Ms. Tescher said that alternative credit services, such as PRBC's, could help financial companies reach this market.
"There is certainly a whole new crop of companies and products on the market that use alternative data sources to reach deeper into untapped markets," she said. "There is an unbelievable amount of competition in this space."
Craig Watts, a spokesman for Fair Isaac, said that lenders have "been asking for a while for a product that lets them assess the [underbanked] population that they can't assess with normal tools," and that the Minneapolis company has discussed using PRBC's data for its Expansion score.
"Our only reservation is that their database is not robust enough. We are looking for databases that are truly national," he said.
A study released last month by HSBC Holdings PLC, First Premier Bank of Sioux Falls, S.D., Freddie Mac, and other major lenders, found that even though Fair Isaac's Expansion score was as reliable as its industry benchmark FICO score, alternative data like PRBC's is still being tested.
Ms. Tescher said that "a lot of different approaches" are being tested, but that work remains "before we know which are the most successful for integrating the data into the existing system."
