Director Watt:
Don’t Waste This Opportunity


Much has been written and said about using a credit scoring model other than FICO in the mortgage industry. We all have our opinions, views and skepticisms.

Ultimately, this is going to boil down to one man’s decision, and that is FHFA Director Mel Watt. I’ve met Director Watt on a number of occasions and find him to be thoughtful, measured and eager to improve the housing finance system.

Given his role and his willingness to listen, I penned an open letter to him that was published on The letter addresses a number of hurdles, opposing views and misconceptions. Included below are a few excerpts and the full article is available here.

Editorial note: the version posted on HousingWire differs slightly to the version included in these excerpts.


Director Watt: Don’t Waste this Opportunity

By Barrett Burns, president & CEO, VantageScore Solutions


Homeownership is currently at a 50-year low. Director Watt’s decision could improve access to responsible and mainstream credit both in the near and long-term. We can argue about how much or how little, but tell that to anyone on the wrong side of FICO’s arbitrarily restrictive policies or to the advocates who represent them.

By our estimate, 2.5 to 3 million additional consumers (many of whom are minority borrowers) could become mortgage-eligible. In addition, consumers with no score or low scores resulting from legacy scoring models, who today self-select out of the process, would be incentivized to explore whether homeownership could be right for them. These consumers would still be subject to reliable underwriting requirements that analyze a consumer’s capacity to repay a mortgage loan.

Looking longer term, the Mortgage Bankers Association estimates that household growth will be led by 5.7 million additional Hispanic households, 5.0 million additional non-Hispanic White households, 2.4 million additional Black households, 1.9 million additional Asian households and 730,000 additional other households.

Clearly, Director Watt needs to make a prescient decision because restrictive credit scoring models will not adequately support this anticipated demographic shift. The market should be opened to include models that are able to score more of these consumers without compromising predictiveness.


Competition strengthens markets, makes them more efficient and always benefits stakeholders. Competition between VantageScore and FICO has already led to many model innovations. Indeed, since 2006, competition has led to multiple new versions of VantageScore and FICO. These new versions continue to improve in terms of consistency, predictive power, and consumer-friendliness.

It is inarguable that no one company should have a monopoly in determining consumers’ creditworthiness. The market has already weighed in: Last year, some 2,700 organizations used over 8.5 billion VantageScore credit scores. Over 2,200 of those users were financial institutions including some of the largest lenders in the world. They tested VantageScore and over 6 billion of those scores were used to make credit decisions under the watchful eye of regulators.

…Despite changes in credit file data and consumer behaviors, FICO has maintained the same arbitrary minimum scoring criteria since its first generic model. FICO often characterizes these criteria as representing decades of research, but we believe it is more aptly characterized as decades of inertia.

Indeed, FICO’s requirement that a consumer be “credit active” in the previous six months in order to be scored is likely an effort to ensure that lenders never have to “look under the hood” of their loan origination systems. Doing so would mean benchmarking against competitive models and a potential further erosion of its market dominance.

And finally, adhering to its minimum scoring criteria also conveniently allows FICO to sell “add-on” scores, such as FICO XD, which use data sources outside of the three national credit bureaus, to accomplish similar results as does VantageScore 3.0.


Read on for a series of four reality checks that also address important issues including the “race to the bottom,” FICO’s minimum scoring criteria, credit scores versus underwriting criteria, and whether multiple scores creates confusion for consumers.

We are, indeed, at a pivotal moment for the housing industry and for credit score competition. Director Watt…the choice is yours.


Barrett Burns

Experian Releases 8th Annual “State of Credit Report”

Experian conducted its eighth annual “State of Credit Report,” which shows that the average credit scores have increased almost to the level of pre-recession numbers. The study also ranked the cities with the highest and lowest credit score averages and sets forth various generational insights.

This past year, the study showed that origination volumes increased and that consumer confidence is up 25 percent year-over-year, an increase of more than 16 percent over 2007 levels. The national credit score average also increased two points to 675, which is just four points less than the average a decade ago.

Below are more results from Experian’s study on credit in 2017:

Credit Snapshot of the Nation

Average VantageScore                             675    
Average Number of Credit Cards 3.1
Average Balance on Credit Cards $6,354
Average Number of Retail Cards 2.5
Average Balance on Retail Cards $1,841
Average Mortgage Debt $201, 811
Average Non-Mortgage Debt $24,706


As part of this annual study, Experian also ranked U.S. cities by credit score.

Top 10 highest average credit scores by city

2017 highest rankings   City        State       2017 average VantageScore       
1 Minneapolis  Minn. 709
2 Rochester  Minn. 708
3 Mankato  Minn. 708
4 Wausau Wis. 706
5 Green Bay Wis. 705
6 Duluth Minn. 704
7 Sioux Falls S.D. 704
8 San Francisco Calif. 703
9 La Crosse Wis. 703
10 Madison Wis. 703

Bottom 10 lowest average credit scores by city

2017 lowest rankings City State      2017 average VantageScore      
1 Greenwood  Miss. 624
2 Albany Ga. 626
3 Harlingen Texas 631
4 Laredo Texas 635
5 Riverside Calif. 636
6 Corpus Christi Texas 638
7 Odessa Texas 640
8 Monroe La. 640
9 Montgomery Ala. 640
10 Shreveport La. 640

Each city manages credit differently, and the same is true for different generations.

  • While Generation Z is young and still establishing credit, Gen Z members are off to a strong start by keeping the numbers of their credit cards and the amounts of their credit balances low. They are building their credit using different methods than did older generations before them. They have larger student loan debts and fewer credit cards and department store cards, yet they seem to be relying on many of the same credit behaviors as Millennials, such as keeping their debt low and managing it well.  Experian expects that trend to continue.
  • Generation Y/Millennials are also managing their credit well. As a result, the level of their average credit scores continue to climb, and has increased four points over the past year. They have also reduced their overall average debt by eight percent, and have increased their mortgage debt by an additional six percent, which is a positive sign for this generation.
  • Generation X has an average credit score of 658, along with the highest average mortgage debt of all generations. They also have a high level of late payments when compared to the national average. Scores for Gen X members have improved over the past year, so it appears as if they have been managing their debts better than they have in the past, but with the highest debts in all categories, this generation needs to proceed with some caution.
  • Baby Boomers continue to carry quite a bit of debt, specifically mortgage debt. They have the lowest level of late payments of all the generations. With many Baby Boomers approaching retirement, they need to continue their positive credit behaviors to sail into their golden years.
  • As the oldest generation, the Silent Generation still has a lot of mortgage debt, but members are keeping the level of their other debts low and making payments on time. They have the best average credit score (729) of all generations, as well as the lowest level of late payments.

An infographic containing additional data on the generational differences is available on the Experian website and below:

Experian Generational Divide

For more information on Experian’s eighth annual “State of Credit” Report, visit:

White Paper:
Predictive Strength, Innovation behind VantageScore 4.0

A new white paper demonstrates that VantageScore 4.0, the fourth generation VantageScore credit score model, is a model of great innovation. With VantageScore 4.0, risk modeling and assessment have taken a major step forward. The new model has three key innovations: the incorporation of CRC trended data, the application of machine learning techniques, and the alignment with recent changes in public records.

The white paper reviews in depth the following:


VantageScore 4.0 is the first and only tri-bureau credit scoring model to incorporate trended credit data, which is newly available from all three of the national credit reporting companies. Trended credit data reflect changes in consumers’ credit behaviors over time, in contrast to the static, individual credit-history records that have long been available in consumer credit files.

The VantageScore 4.0 model leverages this trended credit data to gain deeper insight into consumers’ borrowing and payment patterns, particularly among consumers in the Prime and Superprime credit-score bands.


VantageScore 4.0 uses machine learning techniques to develop scorecards for consumers with limited credit histories (i.e., consumers who have scoreable trades but have not had an update to their credit file in the last six months). These consumers are not scored with other conventional models, which require a consumer to have a minimum of six months of credit history on the credit file or an update to their credit file at least once every six months.

Machine learning techniques were employed to develop multi-dimensional attributes that more effectively capture the behavioral nuances of consumers who have dormant data files. This technique yielded a 16.6 percent and 12.5 percent performance lift in the bankcard and auto originations categories, respectively, for those with dormant credit histories (i.e., consumers who have scoreable trades but have not had an update to their credit file in the last six months).


VantageScore 4.0 is also the first and only tri-bureau credit scoring model to be built in anticipation of the removal of and/or reduction in the public records and collection trades that have been proposed in the National Consumer Assistance Plan. VantageScore 4.0 has newly redesigned attributes related to public records to accommodate these shifts in volume while having the capacity to continue the consideration of public record information when it is included in a consumer’s credit file.

For more information on how VantageScore 4.0 delivers superior risk predictive performance across credit categories and across the population distribution, visit:

DID YOU KNOW … Is it better to use a debit or a credit card when traveling?

Now that the holidays are over and we’re all back to work, visions of spring break are dancing through my head. But before you pack your skis or bathing suits, you’re likely going to hit the road for business or other personal travel needs. And when you’re on the road, you’re going to have to choose a method of payment for hotel reservations, rental cars, airfare, and meals. Most of us will choose between credit/charge cards and debit cards.

The Difficulties of Traveling with Debit Cards

Opinions vary when it comes to debit cards. Some people love their built-in budget controls because you can’t spend more than you have in your checking account. Some people don’t care for them because they have less attractive fraud protections and their use does nothing to build your credit. Regardless of where you fall on the debit card likability spectrum, one thing is for certain: they’re not good for business or personal travel expenses.

First, the money that backs your debit card is YOUR money, not a bank’s money. As a result, any debit card fraud will mean that it is your money that has been stolen and is gone.  And while you’re likely to get it back eventually, there is no guarantee that you’re going to get all of your money back in a timely manner. That can mean that funds you think are there are actually not there. The worst place to find this out would be on the road, where you’re depending on the debit card for daily sustenance.

Second, almost all hotel and rental car chains will place a hold on the funds in your debit card account that would otherwise cover your entire trip, plus holding funds for “little things” like excess mileage or incidental hotel room charges. That means that a large percentage of the money in your checking account will be unavailable to cover current and impending charges. If you’re depending on your checking account for auto-payment of various reoccurring charges and your trip results in holds against those funds, your payments will not be made. That can mean the imposition of late fees and the potential of generating negative reports on your credit file.

The Benefits of Traveling with Credit or Charge Cards

Remember, when you use a credit or a charge card, you’re using a bank’s money rather than your own money. In fact, you’re accessing funds from a pre-set credit limit that was established when you applied for and opened the account. And, it’s very likely the credit limit is considerably higher than what you’re going to spend on your trip. For that reason, the holds that are placed on your buying power by your hotel and/or rental car company are usually immaterial to your continued use of your credit card.

Further, if your card is lost or exposed to fraudsters while you’re on your trip, the issuing bank will likely have a new card issued and in your hands in fewer than 24 hours. That means you’re less likely to be out of commission than you would be if your debit card account was compromised. And, the best news of all is that you have no fraud liability if someone steals your credit card number. Any charges that a fraudster would make using your card will not come back to haunt you.

Finally, credit cards are the best tools for building, rebuilding, and maintaining solid credit scores. All credit scoring systems will reward you for properly managing your plastic. Keeping your credit balances low and paying your bills on time is easy and highly valuable techniques to maintain or improve your credit scores.

And if you’re worried about the high-interest rates that often accompany credit card accounts, keep in mind that interest on credit cards is optional. That’s right, optional. If you pay your card’s balance in full each month, then there is no interest charge and your interest rate becomes meaningless. In fact, credit card accounts are pretty much the only credit product where the payment of interest is optional. 

Five Questions with Peter Carroll

Peter Carroll is a partner at Oliver Wyman, a global management consulting company. Carroll founded the firm’s Retail Financial Services“Feb2018” practice. For more than 30 years, he has led the development and execution of innovative strategies for financial firms in North America and Europe, primarily focusing on consumer and small business financial services companies.

His robust experience includes implementing information-based strategies in the credit card business, developing state-of-the-art techniques for credit scoring, price optimization and other targeting/decision actions in both lending and deposit-gathering businesses and leading extensive work for US, non-US credit bureaus and other critical data aggregators to identify opportunities for data and analytics application areas. 

He leads extensive work for U.S., non-U.S. credit bureaus and other critical data aggregators to identify opportunities for data and analytics application areas. His expertise also covers branch location strategy, branch network operations and service delivery, mortgage banking, private banking, credit cards and investment products.

Mr. Carroll holds degrees in Engineering and Economics from Cambridge University and the London Business School.

1. There’s been some debate over the years about whether there is “one score” that lenders use for underwriting. Based on your research, what are your thoughts on that narrative?

It is a popular and widespread misconception that lenders rely on a single score to underwrite loan applications. Only two or three scores have achieved a degree of name recognition with consumers, and these are known as “generic” scores. But behind the scenes, there are literally dozens of different credit scores in use — actually, hundreds. Most of these are “proprietary scores” built by (or for) specific lenders to underwrite specific products.

2. Are some lenders actually using multiple scores?

Yes. The larger lenders all use proprietary scores that they built internally, or in some cases, that were developed for them by third parties. These scores are specific to them, as entities as well as to separate products, like credit cards or auto loans. So, these lenders certainly use multiple scores. Even when they are using these proprietary scores they sometimes also check one or another industry generic score as part of the process. Underwriting is much more complicated than just looking up one credit score for an applicant.

3. What are the various roles that credit scores play in a typical credit card issuer’s business?

Broadly, card issuers access to credit bureau files and associated scores for three purposes: targeting potential new customers, underwriting applicants, and monitoring the credit status of existing customers in the portfolio. They also use scores in the collections process for delinquent accounts.

4. What should consumers take away from your research?

Consumers today are much more aware of what happens in the credit process than they used to be; at a high level, they know what “credit scores” are and how their own behavior can influence their score, whether up or down. I think our research suggests that the consumer should not fixate on advice associated with any one score and how to influence it. Certain behaviors — relatively obvious ones — can improve a consumer’s creditworthiness across all credit scores!

5. What are other lending trends are you closely monitoring?

One of the most interesting things happening in the world of credit assessment and credit scores is the gradual integration of “alternative data” — like rental payments, or even checking account information. In some cases this is happening by incorporating the additional data directly into new scores; in other cases, risk assessment relies on existing scores but is supplemented by the additional data. Either way, this has real potential to make access to credit broader and more democratic and to improve the accuracy of risk assessment.

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