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So many alternative scores, so little acceptance

Sienna Kossman

When it comes to alternative credit scores, more options have not translated to greater acceptance by lenders, regardless of how useful the scores might be.

Alternative credit scoring methods such as the FICO Score XD Kelly Dilworth wrote about and TransUnion’s new CreditVision Link score model are supposed to help consumers access financial resources that might not be available otherwise.

However, these new models are definitely not the first alternative credit scoring options on the market.

It’s been over a decade since FICO introduced its first FICO Expansion Score model, which was supposed to factor in more data records like CreditVision Link. The VantageScore has also been around for a while and includes nontraditional data factors such as utility bill records. A quick Google search shows there are a number of start-up organizations, including eCredable and PRBC that also offer alternative credit scoring models.

Despite a wide variety of options, most lenders — and even some industry experts — have resisted these non-traditional tools thus far.

To some degree, lenders may just be slow to incorporate new scoring models. It’s kind of human nature to resist change, after all. However, the lack of widespread acceptance of alternative credit scores may stem from deeper concerns.

Some industry experts, including Chi Chi Wu from the National Consumer Law Center, are worried that granting lenders access to data from payday loan records or late utility bill payments made by low income individuals for these scoring models could negatively reflect on an applicant’s alternate credit score.

And there are also concerns that alternative scoring may invade our privacy, giving lenders access to more of consumer’s personal data than they might have otherwise seen.

While more information can be useful, it can also be harmful. As lenders look at a vast pool of data (and loan applicants aren’t sure what exactly they are seeing) there may be opportunity for discrimination or information mismanagement.

“Now you have data, you can predict anything,” Max Gasner, founder of retail financial services start-up One Financial, explained to The Financial Times in February. “You can use your Facebook and Twitter data to tell what race you are, whether you’re gay or straight. You can predict a lot of stuff that’s illegal to use for lending and you can also more finely discriminate.”

And will consumers even know what’s being done with all their data? Maybe not, which is another concern expressed by Pam Dixon and Bob Gellman in a World Privacy Forum report.

“Data brokers, merchants, government entities and others can create or use a consumer score without notice to consumers,” they wrote. “Laws governing credit scores do not typically extend protection to the new consumer scores.”

While these are all important points to consider, I really think the benefits of alternative credit scoring methods may be worth giving them a try — especially with so many consumers are struggling to find their financial footing.

After all, in May, the CFPB found that 1-in-10 Americans do not have any credit history with a nationwide reporting agency. Credit invisibility is more prevalent among blacks, Hispanics and those living in low-income areas.

If more information only further proves that a consumer is not creditworthy, for whatever reasons, then so be it. It’s better for both the individual and potential lender to avoid getting into a situation that gets them both in trouble.

Concerns about companies having too much of our data are almost moot. Thanks to the Internet, social media and digital marketing techniques, so much of our data is out there already. And who knows what data fraudsters already have their hands on — not to be overly cynical, or anything. Let’s put big data to good use and see what happens instead of constantly worrying about who does or does not have it.

And who knows, maybe if more credit-shy millennials gain access to some new credit opportunities, they will have a chance to raise their often lower credit scores that other generations like to fret about.

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  • Douglas John

    Credit scores in the USA are used extensively when “credit” isn’t even being granted, such as a home rent or lease. In other countries like Canada it isn’t permitted, as you’re not granting “credit” as such. The one in ten Americans that don’t have a credit standing with the big three perhaps don’t like credit, don’t even exist, or can start with a 300. secured card. My US dad didn’t like credit (farm boy), and had just two cards, one gas and one charge, and a score of 807. If it wasn’t for driving and travel he wouldn’t have had a card at all. Old school.