New scoring system on way

Lenders could adopt the US-style ‘FICO’ credit scoring system within 10 years, according to EuroCatalyst.

Speaking at the recent Council of Mortgage Lenders’ funding summit Toni Moss, partner at EuroCatalyst, told delegates that she believes it is inevitable the US way will be adopted in the UK.

A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a way of determining the likelihood that credit customers will pay their bills. Fair Isaac began working on credit scoring in the US in the late 1950s. Since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation.

Moss says: “The more risk we try to control, the more risk we create. I am happy to go on the record in saying it is inevitable that the lending market will reduce individuals to scores to give credit, and that this could happen within the next 10 years.”

But other speakers at the second annual event disagreed.

Grey Kohansky, director at Fitch Ratings, says the UK is unlikely to adopt a scoring system such as FICO because when lenders first looked at the opportunities the UK mortgage market afforded there was no credit scoring system for them to adopt, which forced them to develop their own systems.

Kohansky adds: “I believe this is the best way forward.”

Stephen Knight, executive chairman at GMAC-RFC, says: “A FICO-style scoring system would force lenders to dumb down to the lowest common denominator. At GMAC-RFC we use Fitch statistics to benchmark our credit scores and ensure we are broadly in line with the market.”