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IPFS News Link • Social Networking/Social Media

F Stands For Facebook: Presenting The New FICO Credit Score

• Zero Hedge

The problem with FICO scores - or any other measure of creditworthiness where the model inputs are linked to payment history - is that they don't end up being very high for people who aren't good about making payments on time and that's bad news when you're trying to build a successful "originate to sell" model. 

If you're a subprime auto lender for instance, and you want to make as many loans as you can so that you can sell them to Wall Street where they will be put through the securitization doomsday machine, you don't really care about the creditworthiness of the borrower, but you have to base your decisions on something because if any annoying regulators ever come sniffing around your books trying to figure out why the entire market just disintegrated into a smoldering pile of subprime ashes you can point to a number and say "see, by this metric things should have been ok."

So what do you do? Well, one thing you can do is come up with an alternative way to measure creditworthiness and preferably one which is virtually guaranteed to come back with a happy result, which is exactly what Fair Isaac decided to do. Here's what WSJ said about the new "unnamed" score at the time:

The new score, which isn't yet named, will be calculated based on consumers' payment history with their cable, cellphone, electric and gas bills, as well as how often they change addresses and other factors, according to Fair Isaac, also known as FICO. Traditional FICO scores that lenders use in the approval or rejection process are calculated based on the information in the credit reports from the three major credit-reporting firms, Equifax Inc., Experian PLC and TransUnion.


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