New FICO Model Will Give Credit Scores To Those Without Credit

The Wall Street Journal reported yesterday (sorry, paywall link) that Fair Isaac, the company responsible for coming up with the FICO credit scoring standard, will be rolling out a new scoring system that could grant credit scores to up to 53 million Americans who lack traditional credit products.

The traditional scoring model uses criteria such as average age of credit accounts, the presence of late payments or other derogatory marks, and number of inquiries to determine a person’s creditworthiness. Many people who don’t have credit accounts can’t be scored because there isn’t data on any of the above.

The new scoring model will take into account other “factors of stability” including payment of utilities (such as cell phone bills and electric bills) and the number of times a person has changed addresses recently. It will be scored on the 300-850 scale, just as the traditional model is. Other factors influencing the new scores haven’t been released.

I see opening up credit to more people as generally a good thing, but I am apt to believe that irresponsible credit card use may increase after this new system is rolled out. It will be interesting to see the ramifications of up to 53 million Americans increasingly eligible for traditional credit-related products. I can only hope that some new and improved rewards credit cards and manufactured spending tools will come down the road!

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