FICO XD: A New Credit Score for People With No Score

Fair Isaac Corporation (FICO), the company that creates credit scoring formulas that most lenders use, has designed a new formula to create scores for those who have no scores – and are unable to obtain credit. “The FICO XD score runs from 300 to 850, the same range as traditional FICO scores, and a 620 on the XD scale equals a traditional FICO score of 620”, says Jim Wehmann, executive vice president of scores at FICO. He goes on to say, “Borrowers with an XD score who receive a credit card and pay their bills on time for at least six months will then receive regular FICO scores, making it easier to get other types of loans including mortgages.”

Up to 53 Million People Have No Credit Score

According to a study done by the Consumer Financial Protection Bureau (CFPB), about 45 million consumers were considered “unscorable” as of 2010. In fact, 26 million of these people had no credit history on their credit reports at all – making them “credit invisible” according to the study. The other 19 million either had no credit score due to “stale” (old) or “insufficient” history. Although credit data continues to report on our credit reports for 7 years, unless you have recent reporting information (within the past 2 years), this can result in no credit score.

In 2014 FICO conducted research into developing a new credit scoring formula. They determined that many consumers who currently have no credit score would be able to pay a loan back as agreed, if they weren’t being prevented by a scoring system that determined credit approval based on limited or old credit data. From their research they also determined that as of 2014, nearly 53 million consumers were without credit scores, according to an October 2015 article in the Wall Street Journal. That’s about 1 in 5 of the U.S. adult population!

FICO XD: Scoring the “Un-scorable”

This new credit score formula is calculated by using payment information reported by creditors such as cable, cellphone and utility providers. This information comes from the National Consumer Telecom & Utilities Exchange (NCTUE), which is maintained by Equifax. The new score will also factor in data from LexisNexis Risk Solutions showing how often a consumer changes addresses as a predictor of risk. FICO XD is intended for those who have not been able to obtain financing because they have no credit score from the current FICO scoring formulas.

The new FICO XD score has been in a pilot phase with 12 of the largest credit card companies since November of 2014. According to FICO, over 50% of the credit-card applicants it reviewed now have the new FICO XD score even though they were previously unscorable. “In our pilot program, we have found that over 1/3 of these newly scored consumers have scores over 620, which is a common threshold for lenders. Most “credit invisible” people with FICO XD scores above 620 who open traditional credit accounts go on to achieve high standard FICO Scores.” – Dave Shellenberger, senior director of scoring and predictive analytics at FICO.

4 Things to Know About FICO XD

1. FICO XD does not replace the traditional FICO scores. This new score is only used if you have no score. If you have a credit score from current scoring formulas, then lenders use that score. the purpose of FICO XD is to provide an avenue for people obtain credit and establish a traditional score that opens the door for future credit applications.

2. You will want a copy of your NCTUE reports. The new FICO XD score will be based upon information provided by utility and telecommunications companies to this separate database. Just like any credit bureau, there will likely be some errors that will need correction. Currently there are two ways to request this report.
   1. Call 866.349.5185 – and ask for the NCTUE Disclosure Report.
   2. Mail a request to the following address: NCTUE Disclosure Report, PO Box 105161, Atlanta, GA 30374. (The NCTUE database is housed and managed by Equifax and is a consortium of over 70 member companies from the telecommunications, utilities and pay TV industries.)

   If you see information in your NCTUE report that does not look accurate, you have the right to dispute the information. A dispute form will be included with the report you receive. Simply fill out and return the dispute form to initiate an investigation.

3. FICO XD uses the same score range as other FICO formulas, from 300 – 850. The level of risk is supposed to be the same whether you have a 650 score from a FICO 8 (current base formula) or a 650 score from the FICO XD formula.

4. FICO XD is still in a pilot phase – with those banks participating using it on a limited basis, so they can gather experience with this new approach. Also, the new score is based on a very limited amount of payment data, and if you are living in an area where the utility, phone, or TV companies does not provide data to the NCTUE, then this score won’t be of any help to you. A large scale rollout of using FICO XD among numerous lenders for credit cards and other consumer lending may still be years away.