FICO XD 101

Alternative Credit Scoring for Limited Data

FICO XD 101
October 13, 2016

Building your initial credit score can be a difficult task. If you have a limited credit history or no history at all, creditors have a difficult time determining the amount of risk that you represent.

The Consumer Financial Protection Bureau (CFPB) determined in 2015 that approximately 45 million consumers either have insufficient data in their credit reports to generate a credit score or are "credit invisible," meaning that they have no credit report information at all. FICO XD is an alternative method of credit scoring that aims to assess a limited credit history and reward those who are creditworthy.

Launched as a cooperative effort with Equifax and Lexis-Nexis Risk Solutions, FICO XD uses any credit bureau information available to assess risk, but also adds other information sources to assess responsible behavior — payment histories from vendors such as cable TV and cell phone providers, public records, and property data. This is a win-win situation for both creditors and consumers, as millions of responsible consumers are now able to access credit for the first time without introducing excessive risk.

FICO XD is not intended to replace the traditional FICO score as a long-term alternative; it is not available to you if you have a sufficient record to acquire a traditional FICO score. FICO XD is meant to serve as a bridge to allow proper risk assessment until a sufficient credit history is gathered to allow a regular FICO score — and based on early results, it seems to be working well.

According to the Wall Street Journal, the Fair Isaac Company (creators of the FICO score) anticipated that around one-third of unscorable credit card applicants could be properly characterized using the FICO XD score. During a subsequent review, they determined that around 55% to 60% of applicants could be assigned a FICO XD score.



The FICO XD score follows the same scoring range as the regular FICO score (300 to 850), and rolls over into the regular score with relative ease. Those with XD scores who receive a credit card and regularly pay their bills for at least a six-month period can receive a regular FICO score. In turn, they are able to get loans and other financing that would never have been available without using the XD score as a bridge.

According to the FICO website, over one-third of all the applicants who can be scored with the FICO XD score have ratings above 620, which is a common threshold for credit card approval. Almost half of those applicants who go on to acquire credit eventually achieve FICO scores of 700 or higher. Lexis-Nexis reports that one quarter of the applicants achieve a FICO score of 740 or above within two years.

Keep in mind that errors in recordkeeping sometimes occur in credit reports, and they may occur in your bill payment history as well. It is wise to get a copy of your credit report to check for any errors, and if your FICO XD score does not jibe with your record, you should check for errors to the extent possible.

If you have a limited credit history, try to find out if a creditor uses the FICO XD score before applying for credit. You may be able to qualify for credit thanks to this scale — assuming, of course, that you have responsibly paid all your bills on time and have no blemishes on your record. If the FICO XD score does not help, you can still take more traditional paths to building credit, such as using a secured credit card.

You can check your credit score and read your credit report for free within minutes using MoneyTips Credit Manager.


Photo ©iStock.com/CourtneyKeating

  Conversation   |   6 Comments

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Sara | 10.13.16 @ 15:50
Interesting way to check your FICO. Will have to look more into it.
Jane | 10.13.16 @ 15:57
This is a great way for responsible young adults to buy a car, maybe a home, if the company uses the FICO XD scoring service.
Zanna | 10.13.16 @ 15:58
I can see this being useful for college kids who are just starting their credit history. Both of my older kids could use this info, thanks!
brittany.martinez530 | 10.13.16 @ 16:01
I didn't know you could check a FICCO score this way. this is actually pretty cool.
Christina | 10.13.16 @ 16:32
Great ideas - sending this to my daughter, who is trying to build her credit history!
Nancy | 10.13.16 @ 17:45
This is a great idea to help young people who are just starting out but are responsible enough to earn some credit.
$commenter.renderDisplayableName() | 12.10.16 @ 08:55
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