FICO to use alternative data to assess credit risk of new borrowers

A pilot program currently underway allows 12 of the nation’s largest credit card issuers to assess the creditworthiness of as many as 15 million Americans who could not be rated in the past.

Research conducted by analytics software company FICO has shown alternative data such as property records, telecommunications and utility information are reliable indicators of an individual’s credit risk.

FICO is part of a trial program using alternative data to assess credit risk
FICO is part of a trial program using alternative data to assess credit risk

Under the trial program FICO uses telecommunications, utility and other information from Equifax and property and public records from LexisNexis to issue a FICO score to participating card issuers. This new score is engineered to work with existing FICO scores.

“Working with Equifax and LexisNexis, we set out to help unbanked, under-banked and disadvantaged people gain equal access to the standard credit products enjoyed by millions of Americans,” said Jim Wehmann, FICO’s executive vice president for Scores. “We’re excited by our pilot program’s strong results thus far. FICO’s focus is on expanding access to credit; not simply scoring more people. Our approach also addresses a paradox for people seeking their first traditional credit product – you often need a credit history before you can get traditional credit.”

“The best-in-class telecommunications and utility data available only from Equifax shows that unbanked consumers who, for example, make regular, on-time payments to wireless carriers, may be creditworthy and reliable customers,” said Joy Wilder Lybeer, Senior Vice President of Enterprise Alliances, Equifax. “We want to help card issuers identify as many additional creditworthy people as possible, so as to work toward a more financially inclusive and responsible borrowing environment.”

The pilot program will conclude in the next few months before the score is made available to more lenders later this year.

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