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FICO Fact: How Alternative Data Enhances the Accuracy of Consumer Credit Profiles

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When we talk about alternative data, we focus on how it can help bring millions more people into the mainstream credit ecosystem. An important benefit of finding new broad-based data sources and incorporating them into widely-used credit scoring models is the ability to provide greater visibility into the overall profile of an applicant population.

FICO® Score XD 2 allows for exactly that. Developed by FICO in partnership with LexisNexis Risk Solutions and Equifax, this innovative score utilizes alternative data—data not included in the traditional credit bureau file. The inclusion of this alternative data leads to a more reliable estimate of consumer credit risk and helps score more than 26.5 million previously “unscorable” consumer files.

In addition to bringing new consumers into the system, alternative data also provides more clarity on credit files for consumers who are “credit retired,” meaning they have not used credit in at least six months, and consumers who only have negative information in their file. There are many reasons why a consumer may be inactive and gaining this insight can be challenging. FICO® Score XD 2 solves this problem by incorporating public records and property data from LexisNexis Risk Solutions, supplementing credit file data with this public registry information.

Here's what the data shows:

  • There are 7.4 million traditional consumer credit files for consumers deemed “Credit Retired.” Only 1.7 million (24 percent) of those are scorable using FICO® Score XD 2. Why? Because public registry data not found in the traditional credit file indicates that a large proportion of this population is deceased. Once data on deceased consumers is incorporated, this population drops to 3.9 million and the scorable rate nearly doubles, to 45 percent.
  • There are an additional 16.2 million traditional consumer credit files for consumers who may be rebuilding their credit profile after financial hardship and lack positive credit information. These consumers cannot be reliably scored using traditional credit bureau data alone, but 9.7 million (60 percent) are scorable using FICO® Score XD 2. Once alternative data identifying deceased consumers is incorporated, this segment’s population drops to 15 million and the scorable rate rises to 65 percent.

These significant shifts demonstrate the benefits of incorporating new data sources, including death records, into credit scoring models. By incorporating these innovative new sources, we are able to obtain a clearer picture of the addressable consumer population and avoid significantly overestimating the size of that population.   

What’s more, this data can serve as a resource assisting lenders with fraud prevention. By classifying and not returning a score for those individuals who are identified outside of traditional credit bureau data as deceased, FICO® Score XD 2 can help users expose and prevent cases of credit theft of a deceased person, also known as “credit ghosting.”

Our focus at FICO is to build models that are accurate and inclusive. The incorporation of alternative data in FICO® Score XD 2 allows for a more comprehensive understanding of a consumer’s profile, and ultimately provides a more reliable evaluation of consumer credit risk.

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