Answer: A lot. New alternative credit scoring systems are being developed by the established incumbents as well as start-ups to rate the “credit invisibles” and also provide a more robust measure of creditworthiness.

From NY Times:

THE credit reporting industry is starting to unveil alternative credit scores that use more than just bank and credit card information and allow lenders to extend credit to more consumers.

Fair Isaac, creator of the widely used FICO credit score, has been testing a new score with major credit card lenders for the last year that makes use of alternative data, like cable and cellphone bills, to help assess the likelihood that a borrower will repay a loan.

Now TransUnion, one of the three major credit reporting bureaus, is introducing its own alternative system, aimed at assigning scores to people who may have low traditional scores or lack them entirely.

TransUnion said on Thursday that its new scoring system combined alternative data with a more nuanced analysis of typical credit data. Called CreditVision Link, the system allows lenders to assign scores to 95 percent of American adults, said Mike Mondelli, TransUnion’s senior vice president of alternative data services.

The key question, as with all credit scores, is whether lenders will actually use these new methods to score consumers.  The jury appears to still be out:

FICO’s new score is in a test phase with a dozen big credit card lenders and is expected to be more broadly available early next year. TransUnion said its new scoring system would be used by several lenders by the end of this year. Neither company would identify its participating lenders.

With several start-ups also trying to tackle this problem, an interesting webquest might be to have your students find 3-4 of these new methods and describe in detail the key features (with pros/cons) of each.  Here are a few articles:

• Start-ups expand alternative credit scoring (USA Today)
• Can alternative credit scoring models help millions of consumers (US News and World Report)?
• Five reasons new lenders are ignoring FICO credit scores (Forbes)

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Check out the NGPF Semester Course Lesson on Why Credit Scores Matter

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.