New scores gauge risk of borrowers with little or no credit

Fair Isaac says studies validate FICO Expansion scores

Fair Isaac Credit Services Inc. says a recent study of its FICO Expansion scores -- which are used to qualify borrowers who have little or no information on file with credit bureaus -- demonstrates they are a reliable tool for predicting risk, and match up closely with the company's traditional scores.

Fair Isaac created the FICO Expansion score in 2004, to augment what is now known as the "Classic FICO" score. The FICO Expansion score is intended to help lenders gauge the risk of about 20 percent of the population with thin or no credit bureau files.

That population includes recent immigrants and young adults who make up a significant proportion of the first-time home-buyer market.

Fair Isaac says its study of the performance of FICO Expansion scores -- conducted with the cooperation of more than a dozen of the largest lenders in the mortgage auto finance and credit card industries -- proves they are a reliable measure of risk that calibrate well with the Classic FICO.

In the study, FICO Expansion scores consistently assigned lower scores to borrowers who later had more delinquencies and charge-offs, and higher scores to consumers who ended up with fewer delinquencies and charge-offs, the company said.

There was a close correlation between the Classic FICO and FICO Expansion scores in their ability to predict the odds of a borrower becoming delinquent. Both assign scores of 300 to 850, with a score of 300 representing the highest-risk borrower and 850 the lowest.

"This whole set of data we worked through reinforced that the risk associated with a score of, say, 650 on the FICO Expansion equates well to a Classic FICO 650," said Fair Isaac Vice President Lisa Nelson, who oversees the FICO Expansion program. "That's a key component when you are out talking to the mortgage industry."

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