An online lender that originates home loans claims that it has become the first large lender to abandon credit scores in its credit decisions.
Residential lenders have long utilized credit scores to help predict whether a prospective borrower is likely to repay
a mortgage.
The FICO score has traditionally been the most widely used credit score among mortgage firms and the industries that serve them.
But SoFi says that the FICO model is flawed and outdated.
Instead of helping project how a borrower will behave in the future, SoFi says FICO scores only serve as
a reflection of past behavior.
So the San Francisco-based company announced Tuesday that it no longer factors FICO scores into its loan qualification process.
Instead, SoFi will
consider employment history, track record of meeting financial obligations and monthly cash flow minus expenses in its loan approval process — becoming “the first large lender to become an entirely ‘FICO-Free Zone.'”
SoFi Chief Executive Officer and Co-Founder Mike Cagney noted in the announcement that he and his colleagues have found that the FICO score is anything but transparent.
“Instead of relying on a three digit number to tell us who’s qualified, we look for applicants who have historically paid their bills on time and make more money than they spend,” Cagney said. “It’s that simple.”
SoFi reports that it has issued more than $6 billion in loans since launching last year. Its offerings include student loans, personal loans and home loans.
