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68 I N D U S T R Y I N S I G H T / T O M P A R R E N T Following the credit crisis of 2008, the economic recovery has stabilized consumer credit markets and led to a re- bound of credit availability for consumers. Despite a revival of consumer credit and underwriting standards returning to a more normal range today, here are still challenges. For the housing industry, the biggest trepida- tion is determining whether some consumers are being left behind and locked out of a chance to achieve homeownership due to their lack of access to traditional credit. Millions of Americans don't have credit. In fact, nearly 45 million American adults do not have a traditional credit score, according to a 2015 Consumer Financial Protection Bureau (CFPB) study. Additionally, the study notes an estimated 26 million adults that had no credit bureau records at all. Although 19 million reportedly had credit records, they were still deemed as "unscorable" at that time by the Fair Isaac Corporation (FICO). While the Federal Housing Finance Ad- ministration (FHFA) is currently evaluating the costs and benefits of using updated FICO Scores as well as considering VantageScore for government sponsored enterprise (GSE)- financed mortgages, expanding the availability of credit to those who can handle it is good, but burdening people with credit they cannot handle is counterproductive for both consumers and investors. So, is there a best credit model to expand the American Dream to borrowers that are credit- worthy, yet unscorable? MODEL ONE, OR MODEL TWO FICO and VantageScore have taken quite different approaches to expanding the scorable population. FICO uses additional data from outside the credit rating agencies (CRAs) while VantageScore—a collaboration between the three major CRAs Experian, Equifax, and TransUnion—uses similar scoring methods to FICO, but lowers the requirements for the CRA's based score. According to FICO, their existing al- gorithms already capture all of the relevant information from the CRAs. Meanwhile, FICO determined that any loosening of scoring stan- dards resulted in unacceptable model fits and less reliable rank ordering of creditworthiness. erefore, FICO developed FICO Score XD, utilizing data from outside the credit bureaus to score consumers who are not scorable by traditional methods. FICO Score XD has been validated and made available for credit card lending. With Fair Credit Reporting Act (FCRA)-compliant alternative data, FICO has successfully scored over 50 percent of the people previously considered unscorable. Importantly, this group contains millions of people with no credit bureau record at all—the truly invisible. Scoring this group enables bor- rowers to quickly build a credit history through credit card use that can then be reliably scored for mortgage lending. VantageScore takes a very different approach SCORING THE UNSCORABLE SCORING THE UNSCORABLE

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