Using Unreliable Data Won't Help Credit Invisibles

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 reasons to explore innovative approaches to credit scoring, it is important to understand the risks and benefits. The good news is that there is a safe, reliable and analytically sound way to significantly increase access to credit for currently “unscoreable” consumers. For nearly two years, FICO has been studying the use of data that resides outside credit bureau files — so-called alternative data, such as payments of everyday bills. The result: millions more creditworthy consumers with reliable, genuine FICO® Scores above 600.

Read the full Op-Ed in American Banker.