Círculo de Crédito Boosts Financial Inclusion In Mexico For 20M Citizens
Leading Mexican credit bureau wins FICO® Decisions Award for Decision Management Innovation
Finding a way to score millions without credit history
Círculo de Crédito, the fastest-growing credit bureau in Mexico, has used unique credit risk scores from FICO to boost financial inclusion in Mexico and help an additional 20 million citizens access credit. Since introduced, the FICO® Score and FICO® Extended Score have been used by Mexican banks to make more than 200 million credit decisions and originate more than USD$110B in loans: an amount equivalent to 10 percent of Mexico’s GDP.
With around 10 million Mexicans lacking enough credit history to calculate a risk score, Círculo de Crédito worked with FICO to develop FICO® Extended Score, which analyzes information on a credit applicant’s household credit history, to score people with no credit history who might otherwise find it hard to get credit.
“Mexico’s regulatory environment allows lenders to use the credit history of the people in a credit applicant’s household to score them,” said Alejandro Cardini, chief product officer at Círculo de Crédito. “Using this alternative data in the FICO Extended Score allows millions of people, such as students and homemakers, to access credit for the first time. The score was built on the information of 70 million Mexicans, using 700 million credit data points and allows Círculo to assess 96 percent of applicants. As a result, lenders have seen significant gains as they now have access to stronger analytic tools for their onboarding, account management and collection activities.”
You can read more about this story in the full media release.
Changing lives via access to credit
The underbanked population in Mexico varies from extreme poverty to middle class which means that access to credit can have a significant social impact and change lives by enabling citizens to run businesses, afford education and purchase housing.
From the perspective of the country’s banks, there was a large opportunity to bring this underserved market into the credit mainstream. Solving the credit evaluation problem would ensure that loans could be underwritten more quickly and with appropriate risk assessments.
“The credit-to-GDP ratio in Mexico is around 34 percent, which is still quite low when compared to other countries in the region,” said Cardini. “The partnership with FICO has helped us to democratize access to world-class analytics for over 3,500 financial institutions in Mexico, empowering them to extend over USD$22B in loans to millions of citizens who were previously outside the financial system.”
Lenders trust the FICO Score
The fast growth in usage of the FICO® Extended Score matches the growing use of the standard FICO® Score in Mexico. The FICO Score was introduced in Mexico by Círculo de Crédito in 2014, and sales have grown by an average of 39 percent each year from 2014 to 2018. Lenders trust the FICO Score and use it for their credit origination — 90 percent of Círculo’s credit reports now include a FICO Score. To date, Círculo de Crédito has sold 200 million FICO® Scores, which are used by banks, finance companies, fintech companies, retailers, insurers and other credit grantors to make lending decisions on credit cards, auto loans, personal loans, purchase financing and mortgages.
“Having the support of a world-class company such as FICO is pivotal to our success,” said Cardini. “Círculo de Crédito is positioning itself for the next growth phase as it delivers innovation to serve a wider range of lenders and empower them to drive inclusion and profitability. The incredible growth of the Mexican fintech scene, open banking and embedded finance are all trends we are looking to serve as we become a hub for pioneering companies to solve their business challenges.”
“Financial access remains a top priority for Mexico as a way to reduce poverty and expand the economy,” said Nikhil Behl chief marketing officer at FICO. “We are proud of the impact our partnership with Círculo de Crédito has had to meet the challenge of broadening financial inclusion through analytic innovation of new FICO Scores to help lenders and consumer.”
For its achievements, Círculo de Crédito won a 2022 FICO® Decisions Award for Decision Management Innovation.
“The judges were really impressed with the innovative approach by Círculo and FICO,” said Sibulelo Ncamani, head of operational risk and governance at Absa Bank and one of the FICO Decisions Awards judges. “By looking for the predictive options available and adapting new data, Círculo has developed a credit scoring approach which would no doubt be of interest in other markets.”
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<p>FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores.</p> <p>As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>.</p> <p>But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores.</p> <p>In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO<strong>®</strong> Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score.</p> <p><a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a></p> <p>Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li><strong>Credit history.</strong> Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li><strong>New credit.</strong> High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li><strong>Pay on time.</strong> As you might expect, the further in the past the delinquency, the higher the score – and that’s <u>if</u> a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li><strong>Balance and utilization.</strong> Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of <u>available</u> revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards<em>. </em>The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li><strong>Benchmarks.</strong> I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data.</p> <p>In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage.</p> <p>In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances.</p> <p>Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!</p>
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