The FICO credit score is a three digit number that for years has been used by lenders to evaluate credit card, auto loan and mortgage applicants. The higher the score can mean bigger loans and lower interest rates. FICO scores rage from 300 to 850. The scores are calculated using the information in people’s credit reports, such as payment history, credit card debt relative to spending limits and recent credit applications. Borrowers often check their FICO scores before they apply for credit.
Big lenders are moving away from FICO. Banks are being encouraged to de-emphasize credit scores in an effort to expand access to affordable credit. Regulators are concerned that FICO leaves too many Americans behind, limiting them to payday loans and other costly forms of credit.
Also, lenders are relying less on FICO scores due to the pandemic. The scores don’t reflect deferment and forbearance programs. Bank executives say their own internal data is more reliable since they factor in information from credit reports but also deposit balances and overdrafts and their own lending relationships with applicants.
When shoppers apply for Citizens Financial Group’s buy-now-pay-later loans, the bank considers factors including the products the shoppers are buying. For example, fitness equipment is viewed as a sign of creditworthiness because it suggest a positive change in the applicant’s behavior.
Next year some banks plan to use telephone, cable and utility payment information to help vet potential borrowers.
Bottom line, FICO scores may mean less and less in the future but credit worthiness is still important.