How to show lenders you're a good risk
Q . I am an honest person, but poor. My concern is: I need transportation. I've financed two new cars, paying off both fully. I've also repaid about $30,000 in student loans. The issue is that the most recent of these positive debt elements -- the large student loan paid in 1998, I think -- is ancient history. I've not needed or used credit in more than 10 years. Surely, there is record of these fully repaid debts. How do I recover them? How can these good debts be noted on my credit history?
A . The first thing I recommend you do is to get free copies of your credit reports from all three major credit bureaus at AnnualCreditReport.com. Once you review them, you will know for sure what is still being reported as part of your credit history. My suspicion is that your credit reports will show very little data.
Positive information on open accounts remains on your credit report indefinitely. However, once an account that contains only positive information has been closed, the account will be reported on your credit report for 10 years from the date the account was closed. A closed account with any negative information is deleted seven years after the last delinquency. So, if your student loan was paid on time and in full in 1998, which closes the account, the loan would have been removed from your credit report in 2008.
The reasoning behind this is that the credit bureaus sell credit report information to lenders and others for decision-making. Data more than 10 years old is not of interest to the credit report buyers, so the data isn't kept. Also, because a credit report is intended to be a snapshot of your current credit activity, it makes sense that very old closed accounts -- positive or negative -- would no longer show. By definition, something older than 10 years would not qualify as "current."
So, don't despair about your debt history. You are not alone. Your credit report is what is referred to in the credit industry as a "thin file." However, you have other ways to demonstrate to a potential lender that you are a good credit risk and worthy of being extended a loan. About 50 million Americans -- those new to credit, immigrants and participants in the witness protection program -- are in the same boat as you with little or no credit history on file with the credit bureaus. Many earn a steady income and make regular but unreported payments of rent, utilities and other recurring debt. Here are three suggestions you can try:
Ask if your lender uses the FICO Expansion Score. A company called MicroBilt Corp. offers a PRBC -- or Payment Reporting Builds Credit -- Report to lenders that includes payment data from databases with information on rent payments, utilities, phone, etc. MicroBilt also utilizes a score developed by FICO for thin files called the FICO Expansion Score, which calculates your credit score based on the nontraditional credit information described above. The trick will be to find one of the 500 lenders that use this service.
My experience with car dealers is that they have elephantine memories for sales. If the alternative, credit report route doesn't work out, you might want to return to the dealers where you purchased cars and remind them you are a repeat customer.
If you have a month or two, build a VantageScore, a credit scoring model developed by the three major credit bureaus that requires less information to create a score, by applying for a passbook savings loan at your local bank or credit union. A FICO score may take an additional month or so of credit reporting to develop.
One last thing: When you shop around at different lenders for the best car loan, try to do all of your shopping within 30 days. That way, all of your inquiries will count as a single one and won't affect your new credit score.
Steve Bucci, Detroit News
September 6, 2010
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