The National Consumer Assistance Plan (NCAP) is a comprehensive series of initiatives intended to evaluate the accuracy of credit reports, the process of dealing with credit information, and consumer transparency. As a result of NCAP, in July 2017, the three credit reporting agencies (CRAs) are scheduled to make required changes to the criteria used to accept the reporting of a tax lien and/or civil judgment. It is anticipated that civil judgments and some tax liens will be removed from consumer reporting agency (CRA) data when this goes into effect, including previously reported tax liens and/or civil judgments that do not meet the new NCAP-related reporting requirements. All credit scores that utilize CRA data will be impacted, including but not limited to FICO® Scores. FICO recently conducted research on the most widely used FICO® Score versions at all three CRAs to assess the impact of the NCAP-driven removal of public records... [Read More]
There has been much discussion and several studies over the years regarding the potential value of leveraging rental data in assessing consumer credit risk. Which raises the question: Should rental data be widely reported to the three primary consumer credit agencies (CRAs)? If rental data was reported, this might mean some consumers without loans or credit cards would get a FICO® Score, and gain access to more affordable credit. But how many? And how many of these consumers would be considered creditworthy by prospective lenders? In 2015, FICO introduced FICO® Score 9, which scores rental data. This coincided with the first evidence of sufficient positive and negative rental data at the CRAs, a necessary condition for adding this data into the FICO Score algorithm. Great news, right? Well let’s take a deeper look at some of the facts around rental data in the credit report. Not Enough Rental Data in... [Read More]
Access to credit and the path to homeownership are important parts of the American way of life. That’s why it’s critical to understand what can be done to improve financial inclusion — and what won’t work. For months now, the three main US consumer reporting agencies – through their VantageScore business – have been claiming that millions of credit-starved Americans can get access to mortgages through the “innovation” of simply eliminating long-standing and essential minimum credit scoring criteria. This isn’t innovation, and it won’t help borrowers. It’s time to set the record straight. Claim: By loosening the minimum scoring criteria, VantageScore can give millions of currently unscoreable Americans a credit score, making them mortgage-ready. Truth: Scoring sparse and old data may give more Americans a score, but it won’t help those Americans who are actually seeking homeownership credit. Even worse, it locks millions of Americans into unfairly low scores. To... [Read More]
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]
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]
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]
I recently had the opportunity to participate in a panel discussion: “What is happening with underwriting and credit standards” during The Future of Housing Finance Conference at George Washington University. One of the topics covered, which garnered a great deal of interest from the audience, was how a more predictive score will allow lenders to safely qualify more consumers for a mortgage. More specifically, the interest was around the analytic advancements within FICO® Score 9. As we’ve shared previously, new features in the score include a multi-faceted modeling approach and a more refined treatment of third-party collections (differentiating between medical and non-medical collections, and ignoring paid collections), which significantly enhance mortgage origination prediction. We recently conducted a research study to illustrate the benefit of using FICO® Score 9 for mortgage originations. We used a swap set analysis that captures both the change in consumer distribution across the FICO® Score range... [Read More]
There has been a lot of talk about whether and how various credit scoring models can be used to identify additional creditworthy consumers and expand access to credit. This has been an especially hot topic in the debate over opening up access to credit in the residential mortgage market. American Banker recently published an Op-Ed from Jim Wehmann, head of FICO’s Scores business. In it, he delineates some of the risks associated with the approach being promoted by those claiming that tens of millions of previously “invisible” consumers can qualify for mortgages based on data that exists today in their credit bureau files. Jim notes, “Some have called for the Federal Housing Finance Agency, Federal Housing Administration, Fannie Mae and Freddie Mac to adopt such alternative scores. Unfortunately, scoring these particular credit files through an approach described by some as ‘innovative’ is unreliable and even harmful to the very individuals the CFPB highlighted.” While there are certainly good... [Read More]
There is nothing like a birthday to give you a chance to look back on what you’ve accomplished, and also to think about what’s ahead. The FICO® Score is 25 years old in 2014. Introduced in 1989, it democratized access to credit by removing many of the barriers to fair lending. For the first time, lenders could assess someone’s creditworthiness scientifically and objectively. Over the last 25 years, the FICO® Score has adapted to remaining the most predictive consumer credit score in a rapidly changing economic landscape. Through boom times and bust, the FICO® Score has continued to be the credit score that lenders turn to year after year. While the FICO® Score works well for the 200 million Americans who have a traditional credit history, there are nearly 30 million Americans who don’t but still may need and deserve access to credit. How will the FICO® Score of the... [Read More]
What a year this is shaking out to be. We recently completed the FICO® Score 9 development at all three Consumer Reporting Agencies (CRAs) and are now working with them to make these models generally available. Now that the scores have been launched, I wanted to take a moment to summarize some of the key benefits you will see. The Voice of Customer sessions we held with our clients helped define our research focus and development objectives for FICO® Score 9. Over the several years, we’ve been researching and developing various features of the new score. Here’s a summary of some of the key features of FICO® Score 9. Refreshed – FICO® Scores are redeveloped periodically to account for a changing credit landscape and to incorporate advancements in predictive modeling. Much has happened since FICO® 8 was released – between the mortgage crisis and the ensuing recession, the credit landscape... [Read More]
