Fair Isaac Corp. is expected to announce today a new FICO score, based on data from nontraditional sources - like payday lenders and check-cashers - on consumers elusive to mainstream financial services firms.
The San Rafael, Calif., company, whose analytic models generally work on data supplied by the major credit bureaus, says that to create a product to target the underserved market, it needed data that was not found in the major credit bureaus. So it had to establish its own bureau.
Fair Isaac created a subsidiary, Fair Isaac Credit Services Inc., that, in addition to generating the FICO Expansion score, will produce the company's first proprietary consumer credit report. Though the unit will not house the data, as do the major bureaus - Equifax Inc., TransUnion LLC, and Experian Inc. - it will effectively operate as one. It will cull data from smaller agencies and dispense files to lenders and consumers.
"This is a case, really, where the score is the most important thing," Craig Dillon, Fair Isaac Corp.'s vice president of scoring solutions, said in an interview Friday. Even though it has wanted to assess the credit risk of unbanked consumers for some time, it was hampered by the fact that the major bureaus did not have files on them.
The bureaus' databases are furnished mainly by traditional lenders like credit card and mortgage companies. Many unbanked consumers, such as new immigrants, use other venues, such as check-cashing agents and retailers, for their financial services.
Fair Isaac said it will assemble its credit report by using data such as payment histories on retailer installment plans, lists of checking accounts that were closed because of overdrafts, and even possibly information on rental payments.
"Part of the challenge of building a new scoring product is making sure there's data available upon which to build the score," Mr. Dillon said. "Even if the data does not exist in a convenient place for us, we're now of a sufficient size to make a market for that data ourselves."
Equifax, of Atlanta; Experian, a Costa Mesa, Calif., unit of the British retailer GUS PLC; and TransUnion, a Chicago unit of the Marmon Group owned by the Pritzker family, said they do not use nontraditional lenders like check cashers and payday lenders to furnish credit data.
Fair Isaac says its FICO Expansion score should capture 25 million to 30 million of the roughly 50 million U.S. adults for whom there is insufficient credit bureau data to generate a standard FICO score. According to the company, 161 million consumers have scorable credit bureau files, 32 million have "thin" files, and 22 million have none.
Of the 26 million Mexican-Americans, 40% do not have a traditional banking relationship, according to Fair Isaac. Half do not have credit cards, and 70% do not have car loans.
The FICO Expansion score runs from 150 to 950 and should show a somewhat lower distribution curve than a typical FICO score, Fair Isaac said.
However, Mr. Dillon insisted, "This is not just a subprime market," and the new score "is not a subprime product." The elderly, new immigrants, divorcees, and college students are some of the people the score will capture.
"This is not a homogenous market," he said. "It's a very wide and disjointed population. As such, it was clear to us that no single untraditional data source would solve this problem" of turning up sufficient data on an underserved consumer.
The score uses six to seven categories of data and tens of thousands of furnishers, mostly small businesses, Mr. Dillon said.
