American Banker & Asset Securitization Report
The FICO credit score has long been dominant in consumer securitizations — where lenders bundle consumer loans so that investors can buy a chunk — but that may be starting to change.
The credit card issuer Synchrony Financial used FICO’s top competitor, VantageScore, on a recent $1 billion securitization deal.
VantageScore, which is owned by the three major credit bureaus, remains far from dethroning FICO from its dominant role in the industry. But industry analysts say the deal was notable given that Stamford, Connecticut-based Synchrony is among the country’s largest credit card issuers.
“Synchrony is a trophy name for VantageScore. There’s no question about it,” said Brian Riley, a director at Mercator Advisory Group.
Still, VantageScore has significant ground to make up in its effort to become as widely adopted as FICO — both in the loan-decisioning process and in the bundling of those loans into securities for investors. Lenders are increasingly using non-FICO sources in making their credit decisions, but analysts say the shift has been less rapid in the securitization market.
Issuers in public offerings used FICO in 98.4% of securitizations by dollar, a 2018 Mercator study found, and FICO’s lead hasn’t shifted since.
VantageScore declined to comment on the Synchrony deal, though it pointed to a recent survey it commissioned that found 93% of investors were open to issuers using alternatives to conventional credit scoring.
“There is clearly demand to move away from the status quo with an emphasis on increased inclusivity and transparency, which are two areas where VantageScore is best in class,” VantageScore President and CEO Silvio Tavares said in a press release.
VantageScore says its use of alternative data allows it to rate far more people who have thin or no credit history, enabling more people to access traditional credit options. But FICO has long disputed VantageScore’s assertions and says its new models can reliably score millions more people than before…
Read the the full article on American Banker.