FICO, the provider of the most utilized credit scoring model for more than 200 million Americans, has launched a pilot program that will use nontraditional data — such as payment histories tied to cable, phone and utility bills — to build credit profiles for the 15 million Americans who are currently unable to obtain traditional credit.
These “unbanked or “under-banked” subset of consumers usually don’t have credit cards or other loan histories to build a sufficient credit profile. In order for most consumers to have a FICO, they need to have an account that reports to a credit reporting agency, such as a credit card, mortgage or auto loan. And generally you need to have activity on that account, which means you must being carrying a balance, or have had a balance for a prolonged period of time.
But the 15 million Americans targeted by FICO in its pilot program would have to be current on monthly living expenses, such as their regular monthly bills that cover electricity, cable, phone and other utilities. The new scoring model could run into obstacles such as utility companies who cannot report customer payment data to credit reporting agencies unless they are given the go-head by state regulators.
Nonetheless, FICO is touting the new scores as a way to expand credit to more people, “not simply scoring more people,” says Jim Wehmann, FICO’s executive vice president for Scores.
Under the pilot program, FICO will use the alternative payment data from LexisNexis Risk Solutions and Equifax. The program allows 12 of the largest credit card issuers in the U.S. to use the payment histories on monthly bills to “identify creditworthy individuals who would otherwise be unlikely to obtain traditional credit,” FICO says.
Card issuers will be able to use the alternative score without having to “rip and replace” existing systems, significantly lowering the cost and accelerating time to market, FICO states.
“Card issuers are seeking opportunities to safely expand access to credit based on new data sources that are reliable, compliant and predictive and we have received an incredible response to this pilot program,” said Rick Trainor, CEO, LexisNexis Risk Solutions, Business Services.
FICO said it s planning to complete the pilot program in the coming months, and the company expects to make the score based on alternative credit data available to more lenders later this year.