FICO Pilots New Credit Scoring System Based on Alternative Payments Data

Fair Isaac Corporation (FICO) has launched a system that generates an individual’s credit score using secondary payments information.

The pilot program includes 12 participating credit providers nationwide.

According to the company, roughly 53 million US-based individuals do not have adequate data required to generate a standard FICO score. Using the pilot system, an estimated 28 percent of affected Americans would be able to qualify for a credit score using property and public records compiled by LexisNexis, telecommunications, and utility bills from Equifax.

“The pilot program we announced today is specific to credit cards,” FICO spokesperson Jeff Scott mentioned during a CBS MoneyWatch interview. “If someone is new to credit, it’s rare to take out a $200,000 mortgage. Think about this as an on-ramp to get into the mainstream credit system.”

The announcement received mixed reviews from lenders and consumers. Those who have taken the initiative to maintain their FICO score through responsible payments practices expressed frustration over the new system.

For lenders, the slightly lenient scoring method would allow them to cater to more potential customers, who otherwise would not be eligible for a credit card. It would also streamline the credit-building process for cash dependent individuals.

“What FICO is proposing is that we look at situations and instead of restructuring someone’s debt, we go back to old-fashioned underwriting. We approve or decline a loan based on what we saw financially instead of an artificial, automated score. There are plenty of people with below 650 FICO scores that still pay their mortgages on time,” said Greg Frost Sr., founder of Frost Mortgage Banking Group.

The FICO Expansion score was the company’s first attempt at using alternative data for credit scoring. It was unsuccessful and failed to catch on during its release over a decade ago.