The Fair Isaacs organisation which determines FICO credit scores assesses that one quarter of the US adult population lack any kind of traditional credit data. This makes them unable to obtain credit as they have not generated a FICO score. They may be people who have chosen not to use credit, or have simply been unable to obtain credit as they have no viable credit history. Fair Isaacs has developed the Fico Expansion score to address this, giving those with no traditional FICO score the opportunity to use credit, and providing lenders with a risk assessment which has already proved to be predicatively reliable.
The service benefits consumers from immigrant groups, young people, and women who are divorced and have not previously been responsible for handling the bills, amongst others. Instead of assessing a persons previous credit history as the Fico score does, the new scoring analyses how other bills have been paid. It takes into consideration utility bills, rental payments, repayment on payday loans (if the lender reports) and handling of prepaid credit cards (again if the lender reports).
This type of data helps lenders to assess the creditworthiness of those borrowers with no Fico score, and can cut down on the underwriting process considerably. It can help a lender who is uncertain in a borderline case by illustrating the pattern of a potential borrowers overall financial behaviour.
The Fico Expansion Score works in the same way as the Fico score by giving points between 300 and 850, on non traditional scored payments. Previously only payments in default to utilities etc were recorded by the credit bureaus, but now positive payments can be seen too, which is a huge bonus to those who have managed their finances well without using credit.
The PRCB have also partnered with Fair Isaacs to give information which they have verified. PRCB are effectively the fourth credit bureau and keep data for consumers who are trying to establish a credit score through traditional bill paying rather than credit usage. Many credit lenders are not as yet participating in the scheme but it is expected to expand rapidly once the system is more established. At the moment some prepaid cards advertise that they can help to rebuild credit scores as they report to PRCB, but these cards are primarily aimed at those trying to re-establish a credit history. There is no guarantee that a lender will pay to access a PRCB report.
The Fico Expansion Score is still in its infancy but it offers great opportunities to the 25% of the population which have been effectively excluded from the credit marker, whilst opening a new market for lenders to explore with less risk. It means that it has never been more important for consumers to ensure that all their traditional bills are paid on time, as late payments will keep them excluded.
Sources: Fair Isaacs. PRCB.