Credit Profiles of the Credit Invisible Population Can Alternative Data Help Expand Credit Access? Joanne M Gaskin Senior Director, Scores and Analytics FICO October 2016

Research Briefing Challenge: Millions of consumers that lack credit history have difficulty obtaining credit from mainstream financial institutions Observations: Two change dynamics impacting consumer lending Some alternative credit data sources have developed to a scale that support inclusion into a national system Lenders are seeking opportunities to extend credit to more borrowers, including traditionally underserved consumers Findings: FICO’s research demonstrates the opportunity to extend responsible risk assessment to a broader consumer population

What Drives a FICO® Score? “The Five Information Zones” Approximately 170–200 million consumers have credit files to support a FICO® Score FICO minimum scoring criteria is a single recent and updated trade line (at least 6 months old and updated within the last 6 months) Over 28 million consumers lack this minimum criteria in their credit files, another 25 million have no file on record “Alternative credit data” is defined as information outside the traditional credit file 1 2 3 4 5

Research Insight #1 The Unscorable Population is Comprised of Very Different Segments Collections or adverse public records only 26% Involuntary inactive credit 39% 28m Sparse or inactive credit files Voluntary inactive credit 25% Inquiries only or credit less than 6 months old 10% 25m No traditional credit file on record Inactive credit 64% Collections or adverse public records only 26%

Research Insights into the Unscorable Population Segments Median Age Traditional Credit Data Available Typical Application Rate Scorable Rate with Alternative Data Segment Bad Rate Voluntary Inactive 71 Stale Accounts – Median time since last update is 4 yrs 1- 4% 43% 6.2% New to Credit 24 Inquiry Only or credit less than 6 months old 35-45% 76% 18.4% Derogatory 43 Stale accounts or none at all (e.g. collection only file) 20-30% 47% 34.2% No Traditional Credit File 25 None 54% 14.6%

A Glimpse into the Unscorable Applicant Population Average age of the Credit Bureau No-Hit and New- to-Credit segments are roughly 24 years of age 4% 26% 44% 14% 12%

Research Insight #2 InterACT 2008 Using Alternative Data We Can Identify More than a Third Scoring Above 620

Research Insight #3 Applicants of higher credit quality include many new credit seekers Over 60% of applicants scoring over 620 are comprised of consumers with no credit file or inquiry only files Traditional credit data alone is insufficient to assess risk on these sparse/no file applicants 11% 6% 45% 20% 18%

FICO® Score 9 Greater Than: InterACT 2008 Research Insight #4 Consumers with Higher a FICO® Score XD Maintain High Traditional FICO® Scores in the Future FICO® Score 9 Greater Than: % of Population 620 78% 660 67% 700 49% 740 25%

Research Insight #5 Non Scorable Population Using Bureau Data Alone - Lower Score Distribution

Key Insights Not all unscoreables are alike A sizeable portion are “Gen Z” and Young Millennials Alternative credit data can be very effective in providing useful insight to those previously “invisible” rather than using traditional credit data alone A FICO® Score using alternative credit data, such as FICO® Score XD, identifies a large percentage of previously unscorable Gen Z and Young Millennials Previously unscorable consumers that score higher with this new approach go on to maintain good credit standing when a traditional credit history is established

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