Expected FICO changes to aid risky borrowers

Will reflect utility payments

Fair Isaac Corp. is supposed to announce a new credit score metric as soon as this week that will help borrowers who are regarded as too risky by lenders obtain mortgages, credit cards and auto loans. Per The Wall Street Journal:

The metric is currently in its pilot phase with credit-card issuers, and Fair Isaac said it hopes to make as many as 53 million people who don’t have credit scores more acceptable to lenders, the article explained.

The new score is largely a response to banks’ desire to boost lending volumes by increasing loan originations to borrowers who otherwise wouldn’t qualify, many of whom tend to be charged more for loans. But the new yardstick will also throw a spotlight on consumers who often are deemed riskier than the rest of the population and could saddle banks with losses if they fail to make good on their loans.

The new score will include a new variety of financial variables, including consumers’ payment history with their cable, cellphone, electric and gas bills, as well as how often they change addresses and other factors.

The newer credit scoring models put less emphasis on the impact of unpaid medical bills, and the effect of missed payments on debts that have subsequently been paid off is eliminated.

Back in March, the top three credit agencies will change the way they handle errors and list unpaid medical bills due to a giant industry overhaul.

Under an agreement announced with New York state, Equifax Information Services, Experian Information Solutions and TransUnion will be more proactive in resolving disputes over information contained in credit reports—a process federal watchdogs and consumer advocates have long decried as being stacked against individuals.

This falls in lines with recent talks from housing regulators on finding alternatives to traditional credit scoring.

Several real estate trade groups spent Wednesday discussing the challenges that credit standards pose for access for some would-be borrowers and alternatives to traditional credit scoring.

The event, co-hosted by the National Association of Realtors, the Asian Real Estate Association of America and the National Association of Hispanic Real Estate Professionals, included two roundtable discussions and a keynote address from Secretary of Housing and Urban Development Julian Castro.

Castro said he wants to widen the circle of opportunity for responsible families by making homeownership more affordable and accessible. 

“FHA’s work alone will not solve all the industry’s challenges, which is why I appreciate this focus today on out-of-the-box thinking,” he said. “I know that new credit scoring models are being developed so that non-traditional factors can be considered when determining creditworthiness.”

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