Many credit unions rely solely on FICO scores for their lending decisions. Data analytics now gives them the ability to develop their own forward-looking member risk scores.
The FICO score has a long and well-established history as a key metric in the determination of credit-worthiness. The FICO score has the power to influence whether or not a person will be able to experience significant life events, like the purchase of their first car or their first home. However, as we rapidly enter the age of Big Data and Analytics, does the FICO score utilize enough information to make an accurate determination of a borrower’s ability to pay? As I consider the future of credit unions, I believe the industry’s position on the significance of the FICO score in their underwriting process is an important issue. Is FICO a major determining factor, or is it merely one of many data points that can be used to predict probability of default for a given loan?