FICO (FICO), LexisNexis Risk Solutions and Equifax (EFX) released the official details to the new pilot program that was first reported on Wednesday, potentially opening the door to help millions of borrowers secure financing for a home.
The three firms are working together to create a pilot program that will allow 12 of the largest credit card issuers in the U.S. to use alternative data to identify creditworthy individuals who would otherwise be unlikely to obtain traditional credit.
After the pilot program is complete in the coming months, FICO expects to make the score based on alternative credit data available to more lenders later this year.
FICO’s data scientists found that alternative data such as property records, telecommunications and utility information can reliably be used to score 15 million consumers who do not have enough credit data to generate FICO scores.
By using alternative data from LexisNexis and Equifax, FICO will give card issuers a FICO Score that complies with relevant regulations that they can use to extend credit responsibly to millions of additional people.
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.
“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,” added Wehmann.
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.