Borrower credit profiles are the best they’ve ever been, and consumers are entering a new era where they’re more educated and in control of their credit score
The average FICO score has reached a record high of 729, which is “tremendous news,” according to Joanne Gaskin, vice president of scores and analytics at FICO.
A few key trends have emerged from that data: there are fewer delinquencies, perhaps due to the sustained period of economic growth that’s taking place in the U.S., with fewer people experiencing job losses. Another factor is the length of time since the last economic downturn. People have had a long time to recover and those who had credit incidents during that period have seen those incidents age off of their credit report.
Consumers’ FICO scores are constantly changing, Gaskin said, and consumers are gaining access to how the process works and with it, the ability to improve their credit scores.
“It goes to demonstrate the value of having an analytic score that isn’t judgmental in nature, that is dynamic,” Gaskin said, adding that years ago, if a consumer had a credit incident, they may never have access to credit again. “What we can see today is that consumers have the opportunity to recover by being able to pay their other obligations on time, get back to a prime score and get themselves back into the housing market, so we think that’s a real positive.”
Gaskin said that consumers also seem to be deleveraging themselves somewhat. How consumers use credit amounts to 30% of an overall FICO score, and they think that part of that comes from additional credit education that has been more prevalent in the marketplace. Consumers who understand credit and how the formula works to determine their credit score can use that knowledge to their advantage.
Several years ago, FICO launched the Open Access program, which was designed to allow lenders or credit card companies to take the scores that they acquired on a recurring basis and share those to their customers for free. A lot of entities made use of the program, which FICO says resulted in 250 million consumers in the U.S. getting regular access to their FICO scores. The credit score has been demystified, and that’s empowering consumers to take charge and take action to manage their financial health.
In 2019, FICO also rolled out Score a Better Future, where they went to markets with demonstrated need along with local leaders, members of Congress, and financial counsellors and hosted events in order to teach people about the credit scoring process. These events also provided opportunities for people to sit down with credit counselors and create their own financial plan.
“We think those types of actions are really important in terms of helping consumers understand how this works,” Gaskin said. “If no one explains to you how this works, how could you possibly be successful at it?”
FICO also works closely with Operation Hope, a non-profit based in Atlanta founded by John Hope Bryant that provides economic empowerment programs for low to moderate-income youth, individuals and families in underserved communities.
“We do think that there’s a gap where [education] is not necessarily happening in our grade schools and high schools, and maybe we see that there’s a role that’s important for us to play as well, to help consumers understand and take charge of their financial health.”
FICO also released UltraFICO in 2019, which is an initiative in partnership with Finicity and Experian. UltraFICO is billed as a way for consumers to become more actively engaged in the decision-making process. Through the initiative consumers have the ability to permission their own data to be part of the credit score and the credit decision. It’s not about how you spend your money, Gaskin said, but about whether or not the consumer has positive cash flow and how they service the debt that they’ve accrued.
Mortgage originators and lenders will have the potential to expand their customer base by making responsible credit offers who appeared below established credit thresholds or were previously invisible to using traditional credit information alone; attract credit builders or immigrant entrepreneurs, building long-term loyalty with new segments of the population; and an easier way to identify clients with credit incidents but who are a lower credit risk than existing information might suggest.
UltraFICO is in pilot mode, slated for wider release to lenders this spring.
“We’re very excited about the ability to empower the consumer, and make this more transparent to them, and make the information portable,” meaning that it’s common for banks to use this type of information on their current banking clients to make lending decisions for years, but consumers have not had the ability to take that information to other lenders, Gaskin said.
FICO has a number of tools for education as well as helping potential borrowers stay engaged along the credit reparation process. Brokers and originators are welcome to share videos on the credit ecosystem with their borrowers as an easy way to start the conversation.