Lenders are always looking to expand into new markets and there is a huge number of Americans who are simply ‘credit underserved’, meaning they haven’t typically used credit and thus have no credit score. The problem which creditors faced previously was not having a reliable method of determining if these credit underserved potential customers fell into a high risk category or not. They could look at income and length of job history, but if the person had not used credit there was no way to assess if they were good payers or not. The Fico Expansion score addresses this issue by presenting creditors with a reliable predictive score based on other factors than credit use.
Lenders can now use the Fico expansion score as it has proved itself to be a reputable alternative to the traditional Fico score. It is run along the same model of scoring 300-850, but based on different criteria to the Fico score. The expansion score analyses other methods of bill paying such as rent payments, utility payments, payday loan payments and even day care bills. This data provides a score which has proved to be aligned with the Fico score and is accepted as an excellent credit risk model.
Along with an actual credit score, the Fico Expansion score, when requested by lenders, is furnished together with 5 reason statements which explain the factors which influenced the risk assessment. A retrospective study was carried out and participating lenders, including HSBC, Credit Suisse and American Express, amongst others, determined it as being a reputable source for assessing the risk of those who are credit underserved.
The score is of particular benefit to creditors who traditionally have had to do manual underwriting, which can be a long drawn out task. By using the Fico Expansion score the underwriting has been significantly reduced as the scores presented have all been verified and have the Fico stamp of approval. Mortgage lenders have been able to widen their market and the score has been accepted by two of the biggest names, Fannie Mae and Freddy Mac. Lending bases have been expanded and losses reduced.
Other creditors are starting to appreciate the benefits of the Fico Expansion score and starting to use it. It can benefit credit card issuers and loan originators. It certainly benefits those customers who may have previously been turned down for mortgages simply because there was no reliable way of predicting their potential as payers. As it becomes more established and used by more creditors, it is estimated that 90% of those currently without a credit score through traditional means can emerge from the 25% of Americans without credit, to join those who have it. No creditor is going to ignore the huge potential of such a market and let the competitors get ahead.