Credit Score Evolves

The credit scoring giant is increasing the number of consumer behavior types, each with a different score card, that will, according to a Fair Isaac spokesman, “be more precise in predicting risk.”

In the previous eight or nine generations of the FICO score model, which was first introduced in 1989, Fair Isaac had focused only on changes in consumer behavior, Craig Watts told MortgageDaily.com.

“We always left the design blue print alone,” he pointed out. “But this time we decided to get creative and we challenged our research and development team to come up with changes that would significantly improve the predictiveness of this score for lenders. And they did. They changed the blue print for the score slightly.”

The current scoring model divides consumers into 10 different groups based on behavior, each with its own score card, Watts explained. But instead of dividing consumers into 10 groups they now will be divided into 12 groups on the basis of the latest updating and refinement of the FICO scoring system. As before, the FICO scoring system will determine which of the groups a consumer fits into and then use that group’s score card to calculate his or her FICO score.

“But the score range still is the same,” Watts stressed.

From the start, the FICO scoring model has divided consumers into groups, he explained, “in order to do a good job of predicting risk for a very diverse population of consumers.”

Other changes are also being made but Watts declined to reveal them, or to reveal further details about the newly created 12 consumer groups. Changes in Fair Isaac’s scoring system typically are made every 18 to 24 months, he noted.

“So incrementally we’ve been improving the predictiveness of the scores for 18 years and this is one more incremental step,” he said.

“The important thing for mortgage lenders,” Watts stressed, “is the basic parameters of the score that they’re familiar with has not changed. It’s still the same score range.”

This latest scoring model, for which research and redevelopment is still ongoing, will be made available to one of the three credit bureaus — Equifax, Experian or TransUnion — in September and will become available to the other two in the following six to nine months, according to Watts, who wouldn’t reveal which credit bureau will be first.

He said he expects the adoption of the new model to be “fairly fast.”

“Customers have been telling us for years that in the area of scoring they want more predictive options to solve business issues,” Rob Lynch, a spokesman for TransUnion LLC told MortgageDaily.com in an e-mail statement. “At the same time, consumers have become more actively engaged in managing their credit health.”

He noted that when it was launched last year, VantageScore — which has been well received so far, “was to offer choice to a marketplace that has demanded more options.“

Donald Girard, public affairs vice president at Experian, pointed out to MortgageDaily.com that Experian does not comment on scoring systems that compete with its own systems and with the VantageScore system that it and the other credit bureaus created and introduced 14 months ago, even though it uses the FICO system.

Watts admitted that acceptance of Fair Isaac’s Expansion Score for immigrants and others with thin credit histories, which was introduced two years ago, has been slow, but is increasing. That scoring system uses such information as utility and rent payment histories rather than any information from the credit bureaus, he pointed out.

“Lenders are very careful when they adopt a new product like that,” Watts explained. “So there’s been a great deal of tire kicking of the model to make sure the score works the way they want it to work.”

Last year, he said, Fair Isaac worked with “over a dozen leading lenders,” conducting a study to determine if the score was working well in predicting risk.

“The result was extremely positive,” he boasted. “So now more lenders are beginning to use Expansion Score as part of their day-to-day origination work.“