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Special Reports
Nonprime Lending
Study Validates Use of Fair Isaac Expansion Score
By Scott Kersnar
Fair Isaac Corp. here reported cross-industry confirmation that its FICO Expansion
score reliably and consistently predicts credit risk levels using nontraditional credit data. Results from a study
- including bankcard and auto lenders as well as mortgage lenders and investors including Freddie Mac, HSBC, First
Franklin and Option One - show that U.S. lenders can "confidently assess the credit risk of nearly 50 million
Americans who have little or no credit information on file at the major credit reporting agencies," according
to the announcement.
FICO Expansion score taps nontraditional sources of consumer data in order to assess the credit risk of adults,
include recent immigrants and young adults, who have minimal or no credit history on file.
Thirty-five percent of credit-underserved consumers in this study had FICO Expansion scores above 640, satisfying
typical lenders' approval requirements. "What Fair Isaac has done is develop a network of providers with alternative
credit information," said Lisa Nelson, vice president of product management for global scoring solutions.
While declining to name those sources, she said some of them include sources that track checking account activity,
accounts newly opened, accounts closed, bounced checks, checks made good, debit account behavior, telephone payment
records, magazine subscription payments, public records and thin file data from the three credit bureaus.
From 10% to 17% of loan applications are being declined because no traditional score is available on the consumer,
she said. By using FICO Expansion score for these consumers - who include recent immigrants and young adults -
businesses can make more financial services available to more people who have missed out on opportunities simply
because they lack a traditional credit history.
The study confirmed that FICO Expansion score consistently rank-orders by account risk and consistently assigns
lower scores to consumers who later show more delinquencies and charge-offs, while giving higher scores to consumers
who later show fewer delinquencies and charge-offs.
Participating lenders received FICO Expansion scores for 60% to 90% - depending on industry segment and product
- of the consumers addressed in this study who have little or no credit information on file at Equifax, Experian
and TransUnion.
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