Gaps in FICO data lead to new credit scoring product

Did you hear the one about the new FICO score?

It's not a joke. Fair Isaac & Co., creators of the credit score (did you know it was an acronym for the company name?), said it had developed an "alternative" credit score to better serve "the underserved marketplace" in loan making.

Craig Dillon, the company's vice president for scoring solutions, told American Banker the company has seen most of its interest in the new product from the mortgage industry. The Expansion Score, as it's called, culls its data from deposit accounts, payday loans and product purchase payment plans.

Dillon and Tom Grudnowski, chief executive of Fair Isaac, told a teleconference that there are 50 million American consumers who do not have enough data in one of the credit repositories to generate a traditional credit score, AB reported.

That's what caught our eye. The gold standard of scoring models, mathematically gauging the risk associated with borrowers, the FICO score, is bereft of reliable data when it comes to 50 million consumers. In a nation of about 293 million people (not all of whom are "consumers," being toddlers and pre-teens and such).

There are companies, like a lot of the major mortgage information firms and also FNC, Inc., who want to work toward a national collateral score similar to the FICO score for credit. There are appraiser advocacy organizations who want to help them by developing "standards" for data reporting and access.

But there is nothing more "standardized" and widely-accepted than the FICO score, and it leaves 50 million people out of the loop. Automated Valuation Models (AVMs) are unavailable due to lack of data (not lack of standardized data) in about 80 percent of the country.

Exhibit 112 why a FICO-like "collateral score," putting a bunch of appraisers out of business in favor of computer modeling, is a pipe dream.