Fair Isaac is piloting a new credit scoring system that uses alternative data that should make it easier for the underbanked to prove their creditworthiness.
Millions of Americans are currently unable to get credit cards, mortgages and auto loans because they do not have enough credit history to generate a score.
Fair Isaac's Fico unit says that its data scientists have found that alternative data such as property records, telecommunications and utility information can reliably be used to score these people.
The firm is now using data from LexisNexis and Equifax to give 12 of the largest credit card issuers a Fico score that complies with regulations and can be used to extend credit to new customers. The pilot is expected to be completed in the next few months before the service is extended to more firms.
Jim Wehmann, EVP, scores, Fico, says: "Fico's focus is on expanding access to credit; not simply scoring more people. Our approach also addresses a paradox for people seeking their first traditional credit product - you often need a credit history before you can get traditional credit."
Rick Trainor, CEO, LexisNexis Risk Solutions, business services, adds: "Card issuers are seeking opportunities to safely expand access to credit based on new data sources that are reliable, compliant and predictive and we have received an incredible response to this pilot program."
With people leaving ever-greater data footprints online, several players are experimenting with new ways to assess creditworthiness. Startup Lenddo has launched a 'social network' credit card in Colombia that sees applicants approved or declined based on their reputations on Facebook and Twitter.
Meanwhile, London-based Aire puts things like CVs, academic records and paycheques through algorithms to determine whether credit should be extended. The firm's founder, Aneesh Varma, told Finextra that his inspiration was frustration after moving from the US and finding he had zero financial credibility because "your financial passport doesn't move with you - it’s a reset button".