An alternative to credit scores

From the September issue: Do you ever get the feeling that credit scores don’t adequately portray the true risk of an applicant for a home mortgage? Do you think that lenders’ heavy dependence on credit scores is unfair?

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You’ve got some company. Digital Risk, a mortgage analytics firm, is mounting an unusual frontal assault on one of the lending industry’s sacred cows. It argues that credit scores such as FICO failed to predict large numbers of defaults during the mortgage bust years — most notably thousands of “strategic” walkaways by borrowers with high scores — because they could not anticipate homeowners’ reactions to economic stress. Unless lenders use more sophisticated assessment tools that incorporate far more than credit histories, Digital Risk says, they may be misjudging not only many of today’s high-risk borrowers, but other applicants who are safer bets than their credit scores suggest. [more]