Experian, one of the three major U.S. credit bureaus, announced a new scoring model that measures creditworthiness of consumers that have little or no traditional credit history. The product, aimed at underbanked consumers who have driven the rise in prepaid-card usage, includes data from rent payments and public records.
“Many of the estimated 64 million consumers with limited to no credit history that are unscoreable by traditional credit scores are creditworthy,” said Steven Wagner, president of consumer information services at Experian, in a news release.
According to a study by Experian, 30 percent of the underbanked population (more than 20 million) exhibit financial behavior that would deem them to be low credit risks. This group is likely to qualify for better terms and interest rates on loans.
Called the “Extended View” credit score, it will include credit data, rental information and public record data. Experian’s Extended View score ranges from 401 to 990, compared to the 300 to 850 range for FICO scores, which are the most widely used credit-scoring metric by U.S. lenders.
The credit data is pulled from traditional credit reports and public record data includes information from various government agencies. In 2010, Experian introduced its RentBureau division, which collects rental payment data from property management firms and homeowners. This rental payment information is available through Experian’s credit reports and contributes to the Extended View score.
The scoring model is compliant with the Fair Credit Report Act (FCRA), which requires lenders to consider this score when evaluating a person’s credit worthiness if requested by the applicant. However, lenders still reserve the right to deny a loan application if a prospective borrower doesn’t qualify for the lenders’ criteria.
The Extended View score joins a handful of other credit-risk metrics from companies that are using alternative means to measure creditworthiness. In addition to the underbanked, these credit-scoring models also cater to consumers who have bad credit histories or those who’ve been living cash-only.