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Online Lenders We Dont Trust FICO Scores
Dated: January 13 2016
Online lenders: ‘We don’t trust FICO scores’
SAN FRANCISCO – Jan. 13, 2016 – Online lenders increasingly take aim at the FICO score.
San Francisco-based Social Finance Inc. (SoFi) – which offers student loan refinancing, mortgages for high-priced homes and personal loans – says it no longer uses FICO scores in its credit decisions.
"We just don't think the (FICO) score itself is a real driver to credit performance," says SoFi CEO Mike Cagney.
SoFi says its new in-house credit-scoring system will enable it to lend to more borrowers, with Cagney indicating that SoFi approves 10 percent more applicants now than it did previously.
SoFi says it no longer needs the FICO credit scores – it has enough data to gauge the applicants' creditworthiness without it.
However, James Wehmann, an executive vice president at Fair Isaac that created the FICO score, disagrees. "It's really been hard to outperform a really rich credit-bureau file that's got years and years of payment history," he says.
But Cagney insists FICO scores are backward-looking and do not take into account borrowers' current income or ability to repay loans, and SoFi looks at things such as the cash that remains in a borrower's bank account after their monthly expenses, the borrower's history of paying off debt, education and employment background.
"There are lots of situations where we see very high FICO scores but [the borrowers] don't have the cash flow, and we can't underwrite them," says Cagney.
Source: Wall Street Journal (01/11/16) Rudegeair, Peter
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