FICO XD – An Opportunity for Growth

What is FICO XD?

Fair Isaac Corp. (FICO), the creator of the most commonly used credit scores in consumer lending, announced a new FICO scoring formula designed to target consumers that do not have credit scores but could be qualified recipients of consumer credit1. Approximately 28 million U.S. consumers, or 12 percent, have a credit bureau file but not enough information to provide a sufficient score and approximately 25 million, or 10 percent, of U.S. consumers do not have a credit bureau file2. To have a credit score, an individual must have an account such as a credit card, mortgage or auto loan and the lender must report to a credit reporting agency. Also, an individual must have activity on the account, which means the consumer must have a balance and also make payments on the account (either in full or as required)3. Many consumers now choose to pay bills with a debit card and do so on time. However, this does not establish a traditional FICO credit score. A consumer could have excellent payment history and an adequate amount in savings, yet still not qualify for a consumer loan, such as a mortgage or auto loan, since he or she does not have an established a FICO score.

FICO has partnered with Equifax and LexisNexis Risk Solutions to create the new FICO XD4. The score was created in response to the concerns of regulators and banks that consumer credit was not available to individuals without credit scores. The new scoring model incorporates consumers’ payment histories on accounts such as utility, cell phone and cable bills, in addition to how often the accounts are paid and the length of time they have remained open. FICO’s data research suggests that of the newly scored and able consumers (those having an established credit file with insufficient data), more than a third of them have high enough scores to access consumer credit (based on a credit score over 620)2.
  • Interesting facts about FICO XD include:
  • If you already have a FICO score, FICO XD will not apply to you. 
  • The same score range still applies (base score of 300-850)5.

FICO XD is a gateway to a traditional FICO score. FICO’s research shows that many previously unbanked consumers can responsibly transition to scores greater than 620 within two years2.

In November 2014 FICO began the pilot program testing for FICO XD in 12 of the largest credit issuers in the U.S. Several financial institutions now are participating in the pilot FICO XD program for general use6. Full-rollout of FICO XD is expected as early as the first quarter of 20161.