This chapter is from the book
This chapter is from the book
This chapter is from the book
Credit Scores Without Credit
Lenders know there's a big market of the "credit underserved"—people with nonexistent or thin credit histories. Fair Isaac estimates that more than 50 million Americans either have no credit bureau files or have too little information in their files to generate a classic or NextGen FICO credit score.
Some mortgage lenders have been experimenting with ways to tap that market by using new approaches to gauging creditworthiness, such as monitoring whether an applicant has paid rent or utilities on time.
It was only a matter of time before Fair Isaac figured out a way to capitalize on the situation. In mid-2004, Fair Isaac introduced the FICO Expansion Score, which uses nontraditional information sources to create credit scores for people who don't already have credit. These sources include
Payday lenders
Check monitoring companies (the ones banks notify if you bounce too many checks)
Retail purchase payment plans (such as rent-to-own programs)
Fair Isaac says it has enough of this nontraditional data to provide scores of half of the underserved population, or 25 million people.
It remains to be seen how quickly lenders will adopt the new score—and how accurate the underlying information will be. But this expansion of credit and credit scoring just underlines how important it is to adopt responsible money habits, such as paying your bills on time and managing your bank accounts so you don't bounce checks.