All posts by Ethan Dornhelm

Risk & Compliance FICO Research: Student Loan Explosion Hurts Other Borrowing

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The student loan crisis in the US is getting much worse — student loan debt is over $1.3 trillion and is increasing by more than $2,700 per second. Lenders cannot ignore the impact of that debt on individual borrowing. Our latest research shows that: The number of US consumers aged 25-34 with student loan debt of at least $50,000 doubled from 2005 to 2015. During that same time, the average student loan debt across all age 25-34 consumers also doubled — by comparison, average credit card debt and mortgage debt for this population actually fell. While the number of consumers age 25-34 with student loans grew from 2005 to 2015 (from 27% of this population to 40%), there are fewer 25-34 year olds with mortgages or credit cards than 10 years ago.   In fact, our data shows that people with active student loans are far less likely to have... [Read More]

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Risk & Compliance US Credit Quality Rising … The Beat Goes On


When I last blogged about the national distribution of FICO® Scores a year ago, US consumer credit quality was continuing to climb upwards, though with some potential indications of change ahead. At the end of that post, I asked: has the 7+ year upward trend started to level off? 12 months later, the answer is a resounding “no”! The number of consumers scoring in the super-prime range of 800 or above has continued to grow. In October 2015, this figure surpassed 20% of the national population for the first time since we’ve been tracking this metric, dating back to pre-recessionary 2005. In the subsequent six months, the figure continued to climb, reaching 20.4% as of April 2016. Inversely, we see fewer consumers scoring in the lowest score ranges. As of April 2016, just 20.7% of the population score 600 or below. This figure peaked shortly after the Great Recession, at... [Read More]

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Risk & Compliance Scoring More Consumers: Don’t Believe the Hype


Many vendors are promising to score significantly more US consumers than ever before. Before you believe the hype, be sure to ask these three vital questions: Are the credit scores predictive? Do a significant number of consumers score high enough to quality for credit? Will these consumers gain an onramp into the credit mainstream? The goal should not be to just generate more credit scores—but to generate scores that enable lenders to safely and responsibly extend credit to more people. I’ve been blogging about how this can only be done by analyzing alternative data along with credit bureau data. This approach goes beyond making more consumers scorable. It generates meaningful, predictive scores that reveal many creditworthy individuals who would otherwise still be stuck in a credit catch-22. It also is the only means to assess nearly half of the credit invisibles, the more than 25 million consumers that have no... [Read More]

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Risk & Compliance Not All Alternative Data Is Created Equal


What’s the secret to scoring more of the consumers who don’t currently have FICO® Scores? Supplementing credit bureau data with alternative data, which—as I disclosed in my last post—enabled us to accurately score more than 50% of previously unscorable credit applicants. A key reason there’s an opportunity to score more consumers today is the growing number of alternative data providers that have entered the market in recent years. But not all provide equal value for credit scoring. Consider telecommunications payment data. It has many similar qualities as data reported in traditional credit files. In fact, telecom companies occasionally report customer account status to credit bureaus. Yet this information is present in less than 10% of bureau files—and when it is present, it often reflects negative payment history. More complete telecom data is available from alternative sources—and it includes positive as well as negative information. That’s important for expanding credit access... [Read More]

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Risk & Compliance Can Alternative Data Score More Consumers?


In my last blog post, I showed why using credit bureau data alone is insufficient to safely measure the creditworthiness of the millions of US consumers who don’t currently have FICO® Scores. To reliably assess risk for these “unscorable” consumers, we must fill in the partial or missing picture of current financial behavior available from credit bureau files. Can alternative data fill in these gaps? We recently completed research to find out. It showed that with the right alternative data, we can accurately score more than 50% of previously unscorable credit applicants. The scores were significantly more predictive than using bureau data alone and designed to demonstrate repayment odds consistent with traditional FICO® Scores. As part of our study, we built a research model and scored New to Credit consumers using bureau data only (which generally consisted of only one or more credit inquiries). We then compared the model’s performance... [Read More]

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Risk & Compliance Why Bureau Data Alone Can’t Score More Consumers


For any key decision, a minimum amount of information is required to make an informed judgment. Consider an airplane pilot readying for takeoff. Suppose that the radar is out, or the instruments are flickering. A responsible pilot wouldn’t proceed down the runway until having all vital information to ensure a safe takeoff. Similarly, a minimum amount of current data about a prospective borrower is required before making a responsible credit decision. We’ve previously explained the logic behind our “minimum score criteria” for the FICO® Score. But of course, that leaves millions of US consumers without scores. We recently completed research on how to safely extend credit to these “unscorable” consumers (and in my last post, I shared insights into their credit behaviors). In a key part of our study, we analyzed the 28 million unscorable consumers with bureau files having sparse or old bureau data. We wanted to find out... [Read More]

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Risk & Compliance Credit Behaviors of “Unscorables” (Hint: They Aren’t All Alike)


What are the credit behaviors of the millions of US consumers who don’t currently have FICO® Scores? We’ve just published new research on how to safely and responsibly extend credit to these “unscorable” consumers. As part of that study, we took an analytical deep dive to better understand their credit behavior. Since our goal was to help expand credit access, we focused on those within this group who actually apply for credit. These are the consumers for whom extending scoring can make the greatest difference, and we wanted to be able to more accurately assess their credit risk. We found that these consumers differ from the mainstream credit population—and from each other. As a whole, unscorable applicants are more risky. Their overall default rate is almost three times higher than for scorable consumers. Yet risk levels vary considerably within this population. The graphic below shows unscorable applicants separated into risk... [Read More]

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Risk & Compliance Can Alternative Data Expand Credit Access?


Widespread adoption of credit scoring by financial institutions over the past 25 years has made credit available and affordable to a majority of US consumers. But millions don’t currently have FICO® Scores because of sparse or old data in their credit files, or because they lack a credit file all together. This makes it difficult for them to establish credit, with many excluded from the mainstream financial system. This group frequently includes new immigrants, recent college graduates and those recovering from prior financial missteps. Can scoring help lenders safely and responsibly extend credit to these consumers? New FICO research says yes—but only when credit bureau data is augmented by the right alternative data. In fact, our research found that this approach makes it possible to generate predictive credit scores for more than 50% of previously unscorable credit applicants. Our study also showed that scores using alternative credit data help provide... [Read More]

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Risk & Compliance US Credit Quality Continues To Climb – But Will It Level Off?


According to the latest national distribution of FICO® Scores, US consumer credit quality has continued the slow-and-steady climb we’ve seen over the last few years. As we’ve observed for several years now, more consumers are scoring 800 or above—19.9% vs. 19.6% just six months earlier. And fewer consumers are scoring below 550. In fact, there’s been a clear pattern of decline in this segment since the low point of the economy in late 2009/early 2010. Some of this trend may be a result of the lowest-scoring consumers “dropping out” from traditional credit usage, and by extension no longer having valid FICO® Scores. Still, this decline is encouraging. It indicates that overall more consumers using credit are managing it responsibly enough to not be among the lowest scorers. In addition, the national average FICO® Score is currently at an all-time high since we’ve been tracking this metric, dating back to pre-recessionary... [Read More]


Risk & Compliance The Impact of Medical Debt on FICO® Scores


Recently, 31 states announced a joint settlement agreement with the three major credit bureaus regarding changes to the reporting and treatment of consumer credit data, including medical debt. The handling of medical debt is an extremely important issue as the adoption of FICO® Score 9 gains traction. As we explained in a prior blog post, FICO® Score 9 introduces two noteworthy changes in the way the FICO® Score assesses collection information (i.e., information about credit accounts that have been sent to third-party collection agencies), including medical collections. First, FICO® Score 9 disregards all paid collection accounts. Second, FICO® Score 9 differentiates between unpaid medical collections and unpaid non-medical collections. These changes were implemented based on extensive research showing they would improve the score’s predictiveness. Given the tremendous interest in medical debt, it’s worth taking a closer look at these two decisions. Ignoring Paid Collection Accounts As we prepared to develop... [Read More]

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