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FICO Updates its Credit Scoring Model...Again

Posted by admin on Apr 21, 2015 12:13:27 PM

Credit Reporting Update GuideIf the credit reporting industry has not implemented enough changes in 2015 so far, FICO has more updates coming.

On April 2, 2015, Fair Issac Corp. (FICO) announced an update to its traditional scoring model that will provide consumers with access to the 19 versions of its scoring model used most commonly by the three major consumer reporting agencies - Experian, Equifax and TransUnion. The 19 versions included together make up 95% of what lenders currently use to make loan decisions.

Consumers will now be able to view their scores from these 19 models from the various agencies in addition to their base FICO 8 score. The update is meant to provide consumers with a higher level of transparency. FICO's VP for Consumer Scores, Geoff Smith, said of the update:

"In addition to increasing transparency, providing access to the most commonly used version of the FICO score addresses a very important issue - the confusion caused by so-called 'educational' scores and rarely used scores that are altogether different than FICO scores. We want to help people understand the scores lenders are actually using - FICO scores - so they can become savvier consumers of credit products."

But wait, there's more!

On April 6, FICO made another announcement, this time about a pilot program is has been quietly testing since November 2014 along with 12 of the largest credit card issuers in the country. The program allows these lenders to use alternative data to score consumers who do not have enough credit data to generate a traditional FICO score.

Additional data being used includes consumers' payment history with their cable and cell phone bills, utility bills and property records. The data is being furnished by Experian and LexisNexis. According to Jim Wehmann, Executive VP of Scores at FICO, the experimental model can already be used to score more than 15 million of the more 53 million Americans who lack enough credit history to be given a traditional score. The company hopes to be able to reach all 53 million consumers when it rolls the program out nationwide at the end of the year. "FICO's focus is on expanding access to credit; not simply scoring more people," said Wehmann.

This new FICO score, which has yet to be named, will be used alongside existing FICO scores. According to Dave Shellenberger, Senior Director of Scoring and Predictive Analytics at FICO, this new score is an answer to years of building pressure from lenders to make more people creditworthy. Lenders have been asking FICO for a score that will allow them to lend to more borrowers, even if those borrowers are higher risk than those who can be scored by traditional models.

So, none of this has anything to do with FICO 9?

No. At this time, the 19 additional scores that can be viewed in the updated model are available alongside FICO 8 scores. The pilot program is a completely new, and separate, scoring model being used for those consumers who do not have enough credit history to be scored by any traditional model, including FICO 8 and 9.

Fair Isaac announced FICO 9 in October 2014 after a Consumer Financial Protection Bureau (CFPB) study determined that people with medical debt were being over penalized on their credit reports. The model was made available late last fall, but many lending leaders indicated that due to complex system changes and high costs, the new model may not be widely implemented for some time.

Keeping it all straight

Keeping track of the various new scoring models, industry reforms, and legislative changes can be tricky. So we made you a guide.

Written by Ali Bechtel, Public Relations Coordinator

This information is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Although we attempt to provide up-to-date information, laws and regulations often change. We make no claims, promises, or guarantees about the accuracy or completeness of this document. For legal advice, please consult an attorney.

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