Credit Market Moving Away From FICO Scores

Article from WSJ today. It doesn’t mention Upstart but talks about how Credit markets are moving away from FICO scores. Of course this is where UPST can play a big role.

"For decades, nearly every consumer credit decision revolved around a three-digit number—the FICO credit score. That is changing.

FICO has long dominated the market for consumer credit, providing scores for some 200 million U.S. consumers that are used by a whole host of lenders to evaluate credit-card, auto-loan and mortgage applicants. For borrowers, higher scores can mean bigger loans and lower interest rates."…



I read the same article with interest. I found this excerpt important:

“Last summer’s racial-justice protests sparked a conversation at the banks’ main regulator, the Office of the Comptroller of the Currency, about the pitfalls of credit scores. Agency decision makers concluded that the OCC’s credit-score guidance to banks—meant to prevent big loan losses—was preventing many Black and Hispanic borrowers from obtaining affordable credit, according to a person familiar with the matter.”

Now, guess which company has an alternative solution to credit scores, and who also has a regulatory compliance letter already? Upstart.

On another note,the article also mentions Citizens Financial Group Inc., Discover Financial Services, and JP Morgan all developing their own internal models. Part of the thesis for Upstart’s continued success is that they are ahead of everyone else and big institutions won’t be nimble enough to catch up. Whether this is actually true or not seems up in the air.

A competitor
For consumers with limited credit histories (i.e., those with no update to their credit file in the last six months), VantageScore used machine learning to enable its model to score these consumers. This technique also strengthens the model’s ability to accurately score these consumers, who are unable to obtain scores from other commercially available scoring models. .
It’s hard for me to see any really significant moat for Upstart