Fair, Isaac "Demystifies" FICO Scores with List of Score Factors, Web-based Explanation Service
June 8, 2000 (San Rafael, California, USA) — Fair, Isaac and Company, Inc. (NYSE: FIC) today made public a clear and comprehensive list of the factors used in its FICO® credit bureau risk scores. The company also announced it is developing a Web-based service that will explain individual FICO scores, further "demystifying" this vital link in the credit process.
FICO scores are used by US lenders to make billions of credit decisions each year, including more than 75 percent of mortgage loan originations. The credit score factors can be found at www.fairisaac.com, and the score explanation service is expected to be live next month.
"Consumers have a right to understand their credit rating, and how to improve it over time," said Tom Grudnowski, Fair, Isaac's president and CEO. "By expanding the consumer information on our Web site, we're giving consumers what they have asked for: a look at what goes into their credit scores."
Lists of reason codes for the FICO scores have been given to lenders and regulators for many years. Each FICO score is delivered with up to four of these reason codes, which lenders use to help consumers who were denied credit understand how to improve their credit rating. However, this is the first time that a comprehensive, easy-to-understand list of all of the factors that go into FICO scores has been made widely available to the public. Fair, Isaac is also making available descriptions of the score factors and an explanation of how the FICO score evaluates credit history.
This new information can help consumers understand how lenders use credit report data when making credit decisions. The score explanation service will take this to the next level. Consumers will be able to understand how their individual FICO score was derived, and what actions they can take to raise their score over time. Fair, Isaac's move was spurred by increasing public curiosity about credit scores. Recent initiatives to provide scores to consumers have stoked that curiosity but not answered consumers' questions about scoring, noted Grudnowski.
"The score is just a number unless you're a lender, it doesn't tell you much," said Grudnowski. "We saw the need to help consumers by giving them a clear list of what goes into the score. What they can now read on our Web site is the complete list, in English, not technical jargon. Our score explanation service will give consumers even more personalized and relevant information on improving their credit rating. Other organizations have talked about making the credit process more 'transparent'; we are taking action to make the FICO score transparent to everyone."
Fair, Isaac has publicly supported disclosure of credit bureau scores to consumers by mortgage lenders in the context of a lending decision. Fair, Isaac is currently in discussions with all three of the national credit reporting agencies in the U.S. about changing contract agreements that may prevent lenders from disclosing scores to borrowers. The company is also stepping up its educational efforts in order to reduce public confusion over scores.
"For score disclosure to help consumers, it has to be done right," said Cheri St. John, senior vice president, who oversees Fair, Isaac's credit bureau scoring services unit. "That means providing the factors that went into a score not just the score itself. It means talking about what role the score played in a specific lending decision not just giving out scores. And it means providing information on scores that are widely used in real lending decisions not scores that lenders themselves aren't using."
Fair, Isaac has made information on credit scoring available to consumers for years, including educational booklets and explanations on its Web site. "Our scores are recognized as the best in the business, and we provide a high level of support to lenders," noted St. John. "By the same token, we will also provide consumers with the clearest and most comprehensive information about our scores that they can get anywhere."
FICO scores have been widely used in consumer lending for more than 10 years, providing the "gold standard" in fast, fair, objective and consistent risk assessment. "I've been using FICO scores in connection with consumer lending for the last decade because they're easy to use, consistent and effective in predicting consumer behavior," said S. A. Ibrahim, president and CEO of GreenPoint Mortgage, a leading specialty housing finance company and the largest originator of Alt-A and No Doc™ mortgages in the US. "Use of these scores has simplified the mortgage industry's lending process and enabled the growth of the Alt-A and subprime lending businesses. Now mortgage lenders can reach out to large numbers of borrowers who previously found it difficult to get loans." A recent Tower Group report said that lenders' access to complete credit information and scores via credit reporting agencies has been a critical factor in the pooling and securitization of mortgage loans, resulting in rates in the U.S. that are 200 basis points lower than in other Western nations.
Fair, Isaac (NYSE: FIC) is a global provider of customer analytics and decision technology. Widely recognized for its pioneering work in credit scoring, Fair, Isaac revolutionized the way lending decisions are made. Today the company helps clients in multiple industries increase the value of customer relationships. Fair, Isaac has made the Forbes list of the top 200 US small companies seven times in the last eight years, and was named by InformationWeek as one of the top 50 application service providers. Headquartered in San Rafael, California, Fair, Isaac has 20 offices worldwide.