Various newcomers in the American lending industry have begun ditching FICO scores and other traditional evaluation systems, in response to wary millennials who are all but avoiding from incurring credit.
“We just don’t think the score itself is a real driver to credit performance,” Mike Cagney, CEO of upstart lender SoFi, told The Wall Street Journal last year.
SoFi is among those leading the charge on alternative ways of evaluating would-be borrowers, implementing its unique proprietary underwriting score in place of the FICO metric when deciding on applications for student loans, personal loans, and mortgages.
However, observers are saying that it’s premature to conclude that conventional evaluation schemes are indeed on their way to extinction.
“Whether [the shift] proves to be effective over the long-term remains to be seen,” Lend Academy’s Ryan Lichtenwald told FC Business + Innovation.
“[Millennials] don’t have a lot of credit history and it’s interesting to see these companies do more with data.”
And even if FICO itself dies out, this doesn’t mean that credit reports will lose relevance, especially in an era where it’s more important than ever for potential borrowers to monitor their credit histories.
“Over time the credit report will have more and more dominance and the score will fade away,” Credit Karma CEO Kenneth Lin said. “Credit is the best predictor of risk.”
Vancouver office vacancy at lowest levels in 2 years
Lenders shift to analytics for credit assessments