Scoring People with Traditional Data | Traditional Data Disadvantages

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New FICO®Score XD, using alternative data, can be a lifeline for millions of "credit invisibles"

SAN JOSE, Calif. — October 8, 2015 — Using the right alternatives to traditional credit bureau data, lenders can reliably identify millions more consumers who qualify for credit, according to a new research report published today by FICO (NYSE:FICO). The whitepaper, which summarizes extensive research conducted by FICO’s data scientists as part of the company’s alternative data pilot program, also reveals the potential consumer harm that could result from scoring large swaths of the currently "unscorable" with traditional credit bureau data alone.

Download FICO’s white paper, "Can Alternative Data Expand Credit Access?":

Among the findings was that unscorable credit applicants are not all alike, and that subtle distinctions among them can be very important. For example, two groups that emerged within the unscorable population illustrate the pitfalls of other approaches that attempt to score bureau files alone:

  • Prisoners of the past – An estimated 18 million people haven't had access to credit in years due to negative data in their credit files. When assigned a score based on traditional data, they are stuck – month after month, year after year – with a score based on their profile at their moment of financial distress, making it highly unlikely for them to ever receive credit.
  • Chicken or the egg – Similarly, an estimated 25 million people who don't already have credit files face a conundrum: to obtain credit they have to be using credit, but without a reliable way to demonstrate creditworthiness, they’re unlikely to find mainstream lenders willing to take a chance on them.

"FICO's focus is on expanding access to credit – not simply scoring more people," said Jim Wehmann, executive vice president for scores at FICO. "The research shows that bureau data must be supplemented to do this in a manner that actually increases people’s likelihood of obtaining credit. Based on the results of the pilot program, the new FICO Score XD can be a lifeline for millions of previously unscorable people."

FICO'’s findings show that millions of consumers score 620 or higher with FICO® Score XD, and that once these consumers obtain credit, a majority go on to maintain good credit and achieve high traditional FICO Scores.

The pilot program allows 12 of the largest credit card issuers in the U.S. to use alternative data to identify creditworthy individuals who would otherwise be unlikely to obtain traditional credit. Credit cards are generally one of the first credit obligations obtained by those new to credit, and availability of this score helps provide an onramp to mainstream banking and other credit opportunities for those who previously had been excluded. Participating institutions are now at various stages of validating FICO Score XD for general use. FICO expects FICO Score XD to be available more broadly to card issuers as part of the FICO® Score 9 Suite in the coming months.

About FICO
FICO (NYSE: FICO) is a leading analytics software company, helping businesses in 90+ countries make better decisions that drive higher levels of growth, profitability and customer satisfaction. The company’s groundbreaking use of Big Data and mathematical algorithms to predict consumer behavior has transformed entire industries. FICO provides analytics software and tools used across multiple industries to manage risk, fight fraud, build more profitable customer relationships, optimize operations and meet strict government regulations. Many of our products reach industry-wide adoption. These include the FICO® Score, the standard measure of consumer credit risk in the United States. FICO solutions leverage open-source standards and cloud computing to maximize flexibility, speed deployment and reduce costs. The company also helps millions of people manage their personal credit health.

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