When the FICO score was introduced to consumer credit markets over 30 years ago, it represented a sea change for lenders looking for a more accurate way to assess credit risk.
It has provided lenders with a tool designed to grant credit to consumers objectively and securely, based on relevant credit report data, without the influence of subjective human judgment or bias. In the decades since its introduction, the FICO score has evolved to incorporate new sources of data to help more Americans build a credit profile and access the financial system.
Today, the vast majority of Americans have a FICO score, either based solely on traditional credit bureaus data or using alternative data sources, such as cell phone payment records or cash flow data.
As we begin to emerge from the coronavirus pandemic, it will be more important than ever for lenders to have a more complete and inclusive picture of how Americans manage their financial health – even under extraordinary circumstances – beyond of what is seen in the traditional credit bureau. file only.
The FICO score has integrated rental and mobile phone payment data into traditional credit scores and reports for many years. But unfortunately, very little of this data goes to the credit bureaus.
Using alternative data (beyond traditional credit reports) is not a new concept for FICO. As an independent data analysis company, FICO has researched and delivered scores based on alternative data for a number of years, leveraging regulatory-compliant data such as cellular, cable and telephone records. More than 92% of American adults have a cell phone, according to an independent report from FinRegLab and Charles River Associates. Taking advantage of this kind of alternative data can help generate FICO scores for millions of consumers who previously did not have them based on traditional credit bureaus data.
Another promising area of alternative data is cash flow information. More than 96% of American households have a bank or prepaid account, according to the same report. In recent years, consumers have been able to improve their FICO score by demonstrating their positive financial behavior, as evidenced by their checking, savings and money market accounts.
Nonetheless, it is equally essential that the incorporation of alternative data into the subscription is done in a manner that is both fair and transparent. Vast collections of data are now available on American consumers, including everything from where they attended college to the types of websites they visit.
Along with these new sources of data, emerging companies are touting their ability to use new and non-traditional data to assess consumer credit and make loans to millions of new borrowers.
But not all data is created equal. And without the application of proven guarantees, the use of this data can run the risk of aggravating the very problems of access to credit that we seek to solve.
For example, FICO administers a six-point test designed to ensure data is consistent, deep, broad, accurate, predictive, and adds value beyond already available data sources.
By incorporating these new sources of data into the score that the majority of lenders use and that consumers understand, the credit ecosystem can evolve in a way that benefits all stakeholders.
As the resumption of the pandemic continues, it is critically important for Americans to have the opportunity to learn more about their FICO score and how their financial behavior affects it.
Since 2013, consumers can check their FICO score for free through their financial service provider. Today, more than 200 financial institutions participate in this program.
With 90% of top lenders using the FICO score, programs like this are essential in helping consumers see the same score as their lenders. FICO is also partnering with nonprofits to provide free credit counseling to more Americans, prioritizing various communities that have been historically underserved.
Millions of consumers rely on their FICO score for their financial future, and we don’t take this responsibility lightly.
Alternative data, when integrated with traditional credit scoring, is essential to responsibly expanding access to credit for more Americans. The challenge for policymakers is how to integrate it in a safe and regulated way go to Bridge Payday and try for free.