FICO Pushing for Credit Scoring Alternative

Posted by Amrock

Credit scoring agency FICO is moving forward with what it hopes will be the next step in alternative credit scoring, reports HousingWire. The agency’s newest model looks to address the “credit invisible” problem but faces implementation challenges from government regulatory requirements.

Alternative “pathway” to traditional credit

The article reports that FICO’s newest scoring model, FICO Score XD, leverages alternative data sources, like monthly rent payments and phone bills, to help score consumers who do not have typical credit data. While the model so far is being tested in unsecured lending scenarios, such as qualifying for a credit card, there is an expectation the model will find new uses over time.

“It creates a pathway to traditional credit to be considered for a mortgage,” Joanne Gaskin, senior director at FICO, told the news outlet in an interview. “This helps allow people to be considered for a mortgage,” she said.

FHFA, GSEs put off changes to 2019

The article reports the Federal Housing Finance Agency (FHFA) is considering the alternative credit score, but that the change would take time. At this point, changes to current government-sponsored enterprise (GSE) credit scoring models are not anticipated before the latter half of 2019. GSEs like Fannie Mae and Freddie Mac currently use legacy FICO scoring models, pulled from Equifax, Experian, and TransUnion credit reports.

“From a FICO perspective, we would love to see [the FHFA] move forward with adopting FICO score 9,” explained Gaskin. “It’s a more predictive score, and people can qualify in better terms.”

About 25 million are “credit invisible”

Gaskin told the news outlet there are some 25 million people in America considered “credit invisible.” A further 28 million have records in credit agency repositories but don’t yet have a score as the data is too thin. “It would be harmful to generate a score on thin data,” she explained. Most such consumers tend to be people new to the country or millennials who haven’t started using credit yet.