Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
More people in the U.S. are missing out on mainstream credit offerings due to rigid scoring systems that fail to capture the full picture of their payment patterns. Fintech loan marketplace Achieve seeks to reverse the trend by adopting the FICO Score 10 T, the latest version of the credit-scorer’s market-leading model.
FICO Score 10 incorporates trend data from the credit bureaus, so the lender can see the path a borrower is on regarding their payment and credit usage over time.
For Achieve, that creates the potential to differentiate between a borrower who is accumulating more debt and one who is paying down balances — two consumers who may otherwise be interchangeable in a snapshot credit report.
Achieve, a business that promotes personal loans and debt management products, asserts that the step will help expand credit without increasing the risk. The step is timely, too, as the pandemic spillovers, elevated rates, and sustained inflation continue to strain household budgets.
Many borrowers have near-prime or subprime scores, not because they are careless, but because they are rebounding from misfortunes or struggling to weather the high cost-of-living shifts.
“We believe implementing FICO® Score 10 T in the Achieve Personal Loans platform will help reduce delinquency rates and allow us to serve our members with greater confidence,” said Sudip Banerjee, Achieve’s Vice President of Credit Risk.
Why Trended Credit Data Paints a Better Picture
Trend information takes into account not just the current payment history and credit utilization on a credit account, but also how the amounts have been trending over time.
A borrower who is lowering balances on a monthly basis, for example, may appear more creditworthy than the individual carrying the same balance, something that a snapshot score does not capture.
Trend information can provide a more nuanced image of a borrower’s credit utilization.
FICO Score 10 T pulls account data for two years. That provides lenders with a more accurate vision of how consumers handle credit. That can benefit individuals who are seeking to rebuild their finances but have not reached the levels that earlier scoring systems may demand.
Subprime Lending May Experience a Shift
By enabling more precise risk assessments, the implementation of FICO Score 10 T can pave the way for wider adoption of next-generation scoring models among lenders that serve the near-prime and subprime segments.
That group includes fintechs, credit unions, and specialty finance firms that want to compete in a volatile economic landscape.
It is also an acknowledgement that traditional credit models reward borrowers for standing still while penalizing them for actively improving their situations. To lenders who would like to grow responsibly, newer tools such as Score 10 T offer the possibility of a competitive edge in both acquisition and long-term performance.
A Broader Movement Toward Smarter Credit Models
Achieve is one of the growing groups of finance businesses that are exploring alternative data and next-level risk scoring to drive approval levels up without sacrificing underwriting.
More usage of FICO Score 10 T could accelerate if the model proves to keep charge-offs in check while also expanding the addressable market for loans.
Other fintechs are likely to follow suit ahead of the increasing pressure to include consumers who are outside the mainstream lending paradigms. With the CFPB examining algorithmic bias, tools such as FICO Score 10 T also help lenders demonstrate compliance through open, established methodologies.
More competition can place lenders who use smarter technology at an advantage to distinguish the good borrowers from the bad, most critically in tight markets where every basis point of performance can count.
A Turning Point?
FICO Score 10 T deployment at Achieve is a potential breakthrough for technology-driven credit expansion. With an improved model based on trend data, the hope is to lend to more qualified borrowers without added risk.
For subprime lenders and underserved consumers, it is a welcome sign of expansion for an industry that is overdue for innovation.
“FICO® Score 10 T is delivering proven results across a variety of lending portfolios while delivering financial inclusion through innovation,” said Julie May, vice president and general manager of Scores at FICO.
“Our partnership with Achieve underscores how fintechs and lenders of all sizes can leverage FICO’s advanced scoring models to manage risk effectively and control default rates while safely expanding credit access with more competitive credit offers.”
