In writing my last post about legislative and consumer pressures to modify credit scores, often to make them “fair,” I began thinking about what does make a score fair. Legislators and regulators look for fair lending. The U.S. Fair Credit Reporting Act governs much of what FICO does when we develop scoring models.
The challenge is that fairness can't be measured to everyone's satisfaction. Each of us carries our own, highly personal definition of what's fair and what isn't. Quite likely, if a consumer has ever been turned down for credit, it didn't seem fair—no matter how the lender made the decision.
Of course, that doesn’t mean we give up on fairness. At FICO, we have always believed that fairness is essential to the products we make and the way we make them. We acknowledge there is no universal standard, so here in a nutshell is what fairness means to us:
Treat people equitably
That's what scoring and decision systems are all about—applying one system and one set of rules to everybody. Sometimes, treating all people equitably doesn't mean treating them exactly the same. For example, FICO® Scores use multiple scorecards so that people with different credit patterns get scored more accurately. Otherwise, people with a short credit history or just a couple of past delinquencies might appear riskier than they actually are.
Set personal prejudice aside
Compared to the neighborhood banker who knew all his borrowers, scoring may seem cold and impersonal. But we believe an objective assessment like scoring serves everyone better. After all, it's great for a consumer if a loan officer likes you—but what if that's not the case? It shouldn't matter, and with scoring it doesn't.
Stick to the facts
Our scoring models and other tools analyze only data with a proven link to future performance. That helps decision makers ignore information that shouldn't influence their decisions.
Look at all the facts
It’s understandable that people miss a payment now and then. What counts are overall credit patterns, not just credit mistakes. FICO® Scores don't just ding you for missing a payment; they also give you points for maintaining a good payment record. They look at many factors, and the relationship between them, to give the best possible forecast of each person's future credit performance.
Give people a second chance
No score lasts forever or "locks someone out" of credit. Consumers who change the way they manage credit will change their credit scores over time.
What seems fair varies from person to person, so we know we can't meet everyone's expectations all the time. But in everything we do, we don’t just meet the legal definition of what's fair in the lending world. We're committed to living up to our own definition as well.