Let's talk about the future of credit scores. It used to be that consumers could not find out what their credit scores were, and now they can pay to see them. What's on the horizon for consumer credit scores?
Consumers can expect to see more varieties of credit scores presented in more ways with a greater variety of tools to help them improve their credit management over time. My hope is that more credit scores will be provided to consumers that lenders are in fact using, so the scores will have real value to the consumer.
Something right around the corner and clearly here to stay are "alternative credit scores." These are scores, such as the FICO Expansion score, that lenders can use to help assess the risk of a consumer who has had no credit relationships. It could be a teenager applying for credit for the first time, a recent immigrant, a spouse whose partner is gone for whatever reason and has never had credit in his or her own name. Now lenders are beginning to use alternative credit scores in larger and larger numbers. So, for consumers who are just starting out managing credit, the day may soon arrive when instead of filling out long applications and expecting high interest rates and low credit limits, consumers may be treated with the same speed and convenience as the rest of the people who already have an established credit history and a good credit rating.
Do you foresee those same scores being made available to consumers?
Yes. It's certainly our intention to share FICO Expansion scores with consumers as soon as lenders are using those scores in appreciable quantities. What we don't want to do is mislead consumers into thinking because they can get their Expansion score from Fair Isaac that must mean their lender is using the same score. Today, that's probably not the case. These scores are in the process of being adopted by lenders but they don't have the saturation, the dominance in the industry that the classic FICO score does today.
Do you have a time table for when this will be rolled out to consumers?
I've been wrong every time I've come up with a time estimate. So, I've gotten conservative. I thought the Expansion score was going to be embraced a lot faster than it has but I underestimated just how much due diligence lenders go through before they bring one new risk estimating tool into their processes. So the Expansion score has been available for a couple years. My guess is that over the next year or two, Fair Isaac will introduce Expansion scores directly to consumers along with a robust educational platform. But I can't get any more specific than that -- it's in the hands of lenders and how fast they adopt these scores.
Could you talk about the NextGen score -- what will it mean for consumers?
The NextGen FICO score was developed about 10 years after the classic FICO score was first introduced at the credit bureaus. Based on what we learned over that 10 years, we challenged ourselves. If we were to remake the FICO score, what would we do differently?
We started from scratch and created a different blueprint for a consumer credit risk score, which is why we called it NextGen -- the next generation of credit scores. It is a significantly better predictor of a person's risk than the classic FICO score. It breaks the consumer population into smaller subsets, which is useful in assessing risk. It looks at more factors on an individual's credit report than the classic FICO score does. In every way, it's a more robust score.
Lenders were slow to adopt NextGen, which surprised us. We thought if we create a more robust score, lenders would flock to use that better tool, but in fact, we learned that the FICO score had already become so entrenched in the internal processes of banks and other businesses that they regarded it as more burdensome to convert from the classic FICO score, which was working fine, to a score that was measurably better, like the NextGen FICO score. So, while a number of lenders are now using NextGen, it is not anywhere near as dominant as the classic FICO score.