For consumers who are heavy on savings and light on credit history, a new partnership in the world of credit scores could help them lock down a loan. FICO, the company basically synonymous with the credit score, is teaming up with Plaid to bring real-time data showing how much cash someone has on hand to lenders.
Plaid, a fintech company that links bank accounts with financial apps, has a lot of visibility into how its customers move cash between bank accounts, payments apps, investment platforms, and just about everything else. Plaid’s technology runs under the hood across a huge network of 12,000 financial institutions that partner with the fintech startup, which has grown into a key part of the web’s financial infrastructure since its founding in 2013.
All of those connections make Plaid a no-brainer as a partner for Fair Isaac Corp. (FICO), creator of the gold standard credit score used by most lenders. By partnering with Plaid, FICO will be able to offer a historical picture of “money flowing into and out of a consumer’s transaction accounts” through Plaid’s network of finance data, which consumers opt in to through their accounts, the company said in a press release.
“By bringing together FICO’s trusted credit score intelligence with Plaid’s cash flow data, we’re creating the foundation for more comprehensive lending decisions,” said Julie May, FICO vice president and general manager of B2B scores. “This is the beginning of a new chapter in responsible and inclusive lending.”
The credit score slog
Credit scores notoriously require consumers to build up a credit history and demonstrate that they can make timely loan payments—factors that outweigh other aspects of a person’s financial health, like savings and income.
While the system is good business for companies that evaluate and track credit scores, it creates some weird incentives on the consumer side. It’s not uncommon for credit score-conscious consumers, in order to build up a credit history, to open a credit card and regularly use it for payments even if they have more than enough cash to handle their expenses.
To capture a more complete financial picture for both borrowers and lenders, FICO has been building up an alternative to the traditional credit score for years now. That score, called an UltraFICO, was introduced in 2018. The company frames the UltraFICO score as a “more inclusive approach” that includes checking, savings, and money market accounts to help borrowers show lenders that they can afford a loan, even without a stellar credit history.
FICO describes the UltraFICO score as part of a “layered” strategy that can help borrowers secure a loan and lenders find new customers beyond the people who would normally qualify. Plaid’s data will slot naturally into that strategy, offering a broader picture of financial health. The new UltraFICO option will be available through Plaid’s consumer reporting agency, Plaid Check.
Last month, Plaid launched its own alternative credit score, LendScore, which also aims to paint a fuller financial picture for borrowers and lenders by “leveraging cash flow insights, income patterns, and financial account connections to reveal a borrower’s real-time financial story.” Plaid’s LendScore system is in beta testing now and collecting names for its wait list.
“High-quality cash flow data is becoming essential for lenders who want a more comprehensive view of a consumer’s financial picture,” said Adam Yoxtheimer, Plaid’s head of partnerships. “By combining Plaid’s real-time connectivity and intelligence with FICO in this next-generation credit score, we are helping lenders make more confident, inclusive credit decisions through a simple and scalable solution.”