TheMReport — News and strategies for the evolving mortgage marketplace.
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46 | TH E M R EP O RT FEATURE SOMETIMES, IT'S GOOD TO BE A FOLLOWER. Follow MReport on social media to put the latest mortgage banking news, stories, strategies, and insights at the touch of your fingertips. MReport @TheMReportNews The MReport limited credit profile. Alternative data holds particular promise for young people, but the challenge is finding the data. For example, 92% of consum- ers have cell phones, but just 5% of consumers have telco data in their traditional credit bureau files. Why? This data is provided to the credit bureaus on a voluntary basis and can come with signifi- cant responsibilities and hurdles. The best way to increase the use of alternative data is to make sure that it is accessible to third-party analytics firms to assure a com- petitive market. To safely expand access to credit, new models should take into account consumer- permissioned data from check- ing, savings, or money market accounts. By incorporating cash flow data into credit models, we can expand a consumer's credit file and provide up to 15 mil- lion people in the U.S. with the chance to receive a score even if they don't have enough credit history to generate a traditional FICO Score. As these new in- novations in credit scoring are ad- opted by lenders across consumer credit markets, consumers will have more ways to demonstrate that they are credit ready. While there are many creative ideas for using alternative data in underwriting, participants in the lending system must take special care to avoid unintentionally injecting bias into the system. Just because a category of data may have some correlation with credit risk—for example, whether or not a prospective borrower has a col- lege degree, or what school they attended—doesn't mean that it is appropriate to include in a credit scoring formula. Lenders and credit score developers must be diligent in using only data sources that are compliant with the Fair Credit Reporting Act throughout the underwriting process. A Brighter Future J ust as student debt burdens can be worth taking on if they lead to high-quality education and subsequently a good-paying job, in- vestments today in consumer credit education and improving financial literacy will pay off down the road, helping young people plan for the future and chart a realistic path for achieving their financial goals. The rise in student loan debt has deferred homeownership for millions of young Americans, but there are rays of hope. By com- bining new innovations in credit scoring with financial education that helps more consumers get on the ladder, we can take meaning- ful steps to restore the American Dream for this generation. JOANNE GASKIN is VP of Scores and Analytics for FICO. Gaskin oversees the FICO Scores regulatory practice and is responsible for the strategic direction of FICO's analytic solutions and partnerships serving the mortgage industry and capital market space. Gaskin works globally in partnership with financial institutions and regulatory agencies to support making better decisions to drive growth, profitability, and customer satisfaction. Prior to joining FICO, Gaskin served as President and CEO of Auto Club Trust FSB, and EVP with Michigan National Bank.