MINNEAPOLIS – In a move Fair Isaac says serves a social good and is also good business for the lending community, the company has developed a new FICO risk score which it says will “help lenders and other businesses better serve the financial goals of millions of historically credit-underserved U.S. consumers.” The new FICO Expansion score taps into non-traditional sources of consumer data – it's not based on data from the three major national credit bureaus, TransUnion, Equifax, and Experian – to access the credit risk of adults who have minimal or no credit history on file. A Fair Isaac spokesman described these consumers as a “very fragmented population, non-homogeneous group” comprised for example of recent immigrants, people with low incomes, recent widows and divorcees, and young adults. Alternative data used to derive a consumer's Expansion Score could include deposit account records, certain check account performance such as “abusive” use of overdraft protection, payday loan cashing, and purchase payment plan performance. Because it uses these types of alternative sources for credit data, Fair Isaac asserts the Expansion score helps lenders extend credit to these consumers and also helps “new-to-credit” consumers gain access to credit faster to traditional credit products such as credit cards, car loans or home loans. “When you think of what's happened in the industry, if you're in the traditional credit scoring system then you benefit from it,” said Fair Isaac VP of Scoring Solutions Craig Dillon during a scheduled Fair Isaac Webinar to announce the new scoring product. “But if you're outside the system, it's hard to break in. The new Expansion score is designed to help those consumers break into the system,” he said, noting that the FICO Expansion score “is really just an addition to the current FICO score system.” He explained that if an individual doesn't have a traditional FICO score, “they're already identified by lenders as being a no-hit, and their application is denied. With the new FICO Expansion score, these borrowers have a second chance to qualify for a loan product.” That's great, said National Federation of Community Development Credit Unions Executive Director Cliff Rosenthal. “Anything that takes into account so-called non-traditional factors is a positive trend, and we're interested and encouraged by this new score.” But Rosenthal added that, “Like most coins though this has two sides also. The other side is that many credit unions would argue that FICO scores shouldn't be seen as being the bible or having ultimate authority, even though they carry so much weight in lending decisions. FICO scores are not definitive. Positive payment histories, for example, aren't recorded as well as bad ones are, and some credit bureaus don't take scores from small financial institutions unless a minimum number of scores are provided at a given time.” Rosenthal opined that, “the FICO Expansion score is a positive trend and if used judiciously and positively it could have some positive effectives. But it isn't something that should be seen as definitive.” Dillon emphasized that the FICO Expansion score is not a subprime product. “Just because someone isn't in a national credit reporting company's database doesn't mean they're a credit risk,” he stressed, adding that Fair Isaac estimates 70% of growth for lenders in the next five years will come from the credit underserved market. An estimated 160 million Americans have documented credit histories adequate for calculating classic FICO scores, but the TowerGroup estimates about one-quarter of all U.S. adult consumers either lack credit reports entirely or have credit reports with too little information for making a good prediction of credit risk. Fair Isaac estimates about 50 million consumers could benefit from the FICO Expansion scores. Like the classic FICO credit risk score, the Expansion score ranks consumers by the likelihood that they'll become severely delinquent – 90 days or more past-due on a credit account – in the 24 months following scoring. The three-digit Expansion scores range from 150 to 950, the same as FICO NextGen scores. Similarly, consumers with higher scores are considered more likely to repay creditors as agreed. Without the use of FICO Expansion scores, Dillon explained, lenders handling credit applications for consumers without a classic FICO score, have to go through a labor intensive and cost-consuming, manual process evaluating applications. Applicants have to provide a lot of documentation such as copies of rent and utility payments and verification of employment history. And even if their applications are approved, these consumers typically pay higher interest rates because lenders have difficulty accurately assessing their credit risk. The new FICO Expansion score is a “complete solution,” said Dillon. During the design and implementation of the product, Fair Isaac did a lot of work on the data integration component. The company established a data network that integrates information from a series of non-traditional data providers to generate the FICO Expansion score and set up a secure Web site for lenders to use to access individuals' FICO Expansion scores. Fair Isaac also established two new subsidiaries to organize the non-traditional credit data being used to produce the company's new FICO Expansion scores for consumers with thin or no credit histories. The two subsidiaries include: Fair Isaac Credit Services Inc., which will organize the non-traditional data into consumer files; produce reports and risk scores for business clients; and resolve consumer disputes. The second subsidiary – Fair Isaac Network Inc. – will be responsible for developing and managing Fair Isaac's growing network of emerging information sources. The FICO Expansion score, which is compliant with federal and state regulations, is immediately available through the MyFICO.com Web site. The initial rollout is for loan originations, but the company expects prescreening and account management will follow soon. In anticipation of the rollout of the FICO Expansion score, Fair Isaac spoke with several financial institution lenders that are potential users of the product, and Dillon said the initial reception “has been very good.” He anticipated the first customers of the product will be lenders in the auto, mortgage and wireless telephone industries. “Consumers' expectations have changed when it comes to getting credit,” said Dillon. “There's a lot of criticism of lenders when credit is denied. Consumers are more knowledgeable and put a lot of pressure of lenders to give them credit. They demand to be evaluated and priced accurately.” – [email protected]