Pamela Yip: Pilot program may offer help for unbanked and underbanked consumers

People should keep a close eye on a recently announced pilot program by the company behind the widely used FICO credit score.

The program will use nontraditional criteria to identify creditworthy consumers. And if it's eventually adopted by lenders, it could really help the unbanked and underbanked.

Traditional FICO scores are calculated based on information in a person's credit report, which includes payment history, amounts owed and types of credit in use.

But many unbanked and underbanked consumers don't have credit cards and other traditional loans. What's more, some people don't carry debt at all and operate on a cash-only basis.

Under the pilot program, FICO — an acronym for the Fair Isaac Corp. — will work with LexisNexis and credit agency Equifax to create a payment history profile based on property records plus a person's telephone and utility bills. It then will use that alternative data to generate a credit score for 15 million consumers who don't have enough credit information to get traditional FICO scores.


For example, FICO can look to see if a consumer rents a home or apartment. A stable address history can show that a renter has been paying rent on time, said David Shellenberger, FICO senior director for scoring and predictive analytics. And that can indicate whether a consumer is likely to pay other bills on time.

Joy Wilder Lybeer, senior vice president of Enterprise Alliances at Equifax, said data gathered by the credit agency "shows that unbanked consumers who, for example, make regular, on-time payments to wireless carriers, may be creditworthy and reliable customers.

"We want to help (credit) card issuers identify as many additional creditworthy people as possible, so as to work toward a more financially inclusive and responsible borrowing environment," she said.

Twelve of the largest credit card issuers, which FICO isn't identifying, are participating in the pilot program. The company expects to complete the trial by the end of the year when it plans to make the program available to more lenders.

"Working with Equifax and LexisNexis, we set out to help unbanked, underbanked and disadvantaged people gain equal access to the standard credit products enjoyed by millions of Americans," said Jim Wehmann, FICO executive vice president for scores. "Our approach also addresses a paradox for people seeking their first traditional credit product — you often need a credit history before you can get traditional credit."

This is not the first attempt to use such alternative data to generate a credit score. In 2004, Fair Isaac unveiled the FICO Expansion Score to serve recent immigrants, low-income consumers, young adults, and others who didn't have credit in their own name. However, it never took off as expected, said John Ulzheimer, president of consumer education at

Also, VantageScore, the credit score developed by the three major credit bureaus — Equifax, Experian and Trans-Union — has incorporated rent, utility and telephone payment data in all of its models since it was introduced in 2007.

Still, Ulzheimer said the FICO pilot program is a "very good thing, assuming lenders feel confident that scores based on non-traditional data sources are effective at predicting risk."


It's too early to say whether lenders will adopt the new FICO score, but let's hope they do. There are plenty of financially responsible consumers who pay their bills on time. They just don't have a traditional credit history, and they should be given the chance to participate in the financial mainstream.

What To Read Next
Get Local