//FICO Gets Creative With Credit Scores to Facilitate Getting More Americans in Debt

FICO Gets Creative With Credit Scores to Facilitate Getting More Americans in Debt

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Normally, I would relegate this item to a snarky long comment in Links, but this development is sufficiently appalling, while being perversely predictable, so as to merit special attention. From the Wall Street Journal:

Fair Isaac Corp. creator of the widely used FICO credit score, plans to roll out a new scoring system in early 2019 that factors in how consumers manage the cash in their checking, savings and money-market accounts. It is among the biggest shifts for credit reporting and the FICO scoring system, the bedrock of most consumer-lending decisions in the U.S. since the 1990s.

The UltraFICO Score, as it is called, isn’t meant to weed out applicants. Rather, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions, which could indicate how likely they are to repay….

This is occurring at the same time the consumer-credit market appears relatively healthy. Unemployment is low and consumer loan balances—including for credit cards, auto loans and personal loans—are at record highs, and lenders are looking for ways to keep expanding loan volume.

Before we go further, you need to understand what this is about. Banks sell a substantial majority of the consumer loans their originate, typically via securitization. Investors use FICO heavily in evaluating these risks. So the FICO move is to enable banks to make more consumer loans by putting its Good Housekeeping Seal of Approval on them so banks can hawk them to investors.

Oh, and they’ve been testing this new fancy model in a super long, albeit not terribly robust expansion. So one also has to wonder how well they stress tested it. Back to the Journal:

The UltraFICO score will function as an appeal of sorts, likely boosting many applicants with less-than-ideal records. If an applicant’s traditional FICO score falls short, a lender can offer to have the score recalculated to reflect banking activity….

Applicants will be able to choose which accounts they want considered when the score is recalculated….

FICO said about seven million applicants who have low credit scores as a result of thin borrowing histories would likely see their scores improve under the new system. Separately, some 26 million subprime borrowers will end up with higher credit scores, FICO said, with nearly four million seeing an increase of at least 20 points.

Consumers with an average balance of at least $400 who haven’t overdrawn in the prior three months would likely get a boost, FICO said.

$400 and no overdraft in three months??? So the target is people at or barely above the going from paycheck to paycheck level. Help me. And help them.

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