FICO Fact: No Credit Score Versus Low Credit Score

A low FICO score for a consumer can have the perverse effect of preventing them from having access to a second chance through manual underwriting.


We all know that having a higher credit score helps a consumer gain access to credit and get better terms from a lender. And financial institutions use FICO® Scores to underwrite lending to millions of people so that they can achieve their financial goals like buying a first home or starting a business.

At the same time, many consumer advocates have raised an important question: Is it better to have a low score just to have a credit score? Axios recently spoke on the demand to issue out more credit scores. The National Consumer Law Center suggests that “a bad score could shut out a renter out of apartments in a decent school district or even permanent housing.” And experts like Vanessa Perry of George Washington University warn that the mortgage lending industry’s adoption of scoring models that reduces minimum scoring criteria “would simply increase the pool of consumers with poor credit scores who either could not qualify for a mortgage or would enter the subprime market.”

We agree with consumer advocates that this is a legitimate concern. To avoid situations like this, it is critically important that credit scoring models are proven over time and based on sufficient data to reliably assess a consumer’s credit risk in a way that doesn’t generate a low score.

It’s for that reason that FICO is deeply committed to strong minimum scoring criteria. To receive a FICO® Score, we have found that at least 6 months of credit history, as well as at least one piece of credit data reported within the past 6 months, is required to best ensure a reliable look at a consumer’s current financial position. Our research has consistently found that models that rely solely on sparse and/or outdated credit information are not only less reliable at forecasting future performance, but they can lock people into low scores that put credit even further out of reach.

While reducing underwriting standards might sound like it removes barriers to credit, in fact it can have significant downside: consumers can get trapped with low credit scores, perpetuating their inability to build a credit history, and the reduced reliability of credit risk assessment across the entire consumer lending system increases costs for consumers, lenders and investors alike. And any claimed benefits of lowering minimum score criteria results simply isn’t borne out by the data: nearly all of the consumers who can receive a credit score through these reduced standards either have stopped seeking credit or would receive a score too low to receive affordable credit.

Additionally, many lenders and originators — including those that deliver loans to Fannie Mae and Freddie Mac — have procedures in place to manually underwrite a consumer if they don’t have a score. Remember: credit scores are only one factor in determining credit readiness. Generating a low score for a consumer, based on lower scoring criteria, can have the perverse effect of preventing them from having access to a second chance through manual underwriting.

The solution to helping people who don’t have sufficient data in their traditional credit bureau files get credit scores is finding new, reliable alternative data sources. By augmenting traditional credit bureau data with such data, such as telecom, utilities, public record, and checking account data, we can provide predictive and reliable scores that lenders can use to responsibly expand access to credit. Models such as the UltraFICO® Score incorporate these alternative forms of data, to help score more potential borrowers and support their access to mainstream credit.

That’s the responsible path forward when it comes to expanding consumer access to credit: innovating new and alternative data sources that allow lenders to reliably evaluate credit risk — not trapping consumers with low, unreliable scores that prevent them from establishing a credit history and reaching their financial goals.

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