FICO-Free Zone

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FICO Free ZoneMany lenders and alternative funders over the last several years have stressed a reduced dependence on FICO scores, but SoFi might be the first lender to declare their turf a “FICO-Free Zone.”

In a blog post, SoFi co-founder Daniel Macklin vented that his 15 years of credit history in the UK prior to moving to the US counted for nothing at all. To fix that, he felt pressured to obtain and use credit just to build his score, which he referred to as counterintuitive. For those that have been in this country all along though, his gripe was that things that should matter in a credit score for some reason don’t. “The FICO score calculation doesn’t consider things like your savings, your cash flow, your ability to pay non-credit bills like water and electric or your future earnings,” he wrote.

That’s the opposite of how other marketplace lenders are thinking.

In an online discussion I had six months ago with some members of the Lend Academy forum regarding a borrower’s ability to repay as evidenced by their bank statements, the feedback was resoundingly negative. “I have a feeling if you ask to crawl someone’s bank account, they’ll just go elsewhere,” one user said. “Seems that’d only work on subprime borrowers who have limited bargaining power,” he added.

The logic behind the defense of a continued FICO-oriented approach was steeped in competitive advantage, basically that no sane borrower would ever consider disclosing additional information about their financial situation to one lender when another would just give them a loan on FICO score alone. Ironically that translated to, anyone who wants their creditworthiness to be judged on their ability to pay probably can’t afford to pay, at least that was my takeaway from it.

But over in SoFi land, the student lender “has chosen to not use FICO scores when evaluating the financial wherewithal of applicants.” They alternatively examine your more complete financial situation and well-being, things marketplace lending investors on other platforms (at least for consumer loans) seemed to argue couldn’t and shouldn’t be done.

SoFi is no small fish. To date they have issued around $7 billion in loans.

Last modified: January 15, 2016
Sean Murray

Category: Marketplace Lending, p2p lending

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