Do we use FICO in the UK?

Posted by Sam Griffin in Credit Score on 10 February 2020

A US news story has dropped that’s generating some charged discussion about FICO, the American credit scoring company. FICO has recently announced that the way it calculates Credit Scores is changing. Due to a re-jig in its algorithm, an estimated '40 million Americans are likely to see their Credit Scores drop'.

In practice, these individuals will potentially find it more difficult to be accepted for credit facilities such as loans and mortgages, as well as facing higher interests rates.

As you’re probably aware, credit scoring is a large part of UK life too, so how could FICO’s recent update affect us?

What is FICO?

FICO (Fair Isaac Corporation) was originally founded in 1956 by Americans Bill Fair and Earl Isaac. They developed a sophisticated credit scoring system that they sold to American financial institutions like banks and mortgage lenders to help them gauge the creditworthiness of their customers before deciding whether or not to accept them; the FICO score helped develop today’s more accurate, responsible, and – importantly – profitable US lending process.

Today the universal FICO score is a pervasive part of American culture. Every US adult with a financial history will have a FICO score and it’ll be checked in 'over 90% of US lending decisions'. That means US citizens’ FICO scores will influence the outcome of applications for all sorts of products and services: credit cards, car loans, mortgages, mobile phone contracts and more besides.

As FICO scores carry such important real-world implications, attaining the highest possible rating is a financial aspiration up there with earning a strong salary and building a strong 401(k).

That’s why the recent news of 40 million Americans potentially seeing a dip in their hard earned creditworthiness is stirring such worry. FICO tends to update its algorithm every few years, so a change isn’t unheard of, and the focus of this update is to more accurately reflect the risk involved with personal loans. Essentially, taking out a personal loan for debt consolidation purposes (i.e. to settle outstanding credit card bills, while benefiting from the loan’s lower interest rate) can be seen negatively if the recently cleared credit cards come back with high balances shortly after.

Do we use FICO in the UK?

As you might’ve noticed, a lot of the FICO focus is American. It’s a US company, operating in the US, affecting US citizens and US lending. Chances are that if you hear the term 'FICO' bandied about, it’ll be in an American context, but that doesn’t mean it isn’t relevant to the UK.

FICO does operate in the UK, but it has nowhere near the level of market domination that it does across the Atlantic. Most notably, there is no universal Credit Score in the UK. In the US, it would be fair to say that everyone has a Credit Score. Over here, it is much less clear cut.

US consumers have their FICO score, which can be based on data from multiple Credit Reference Agencies (CRAs), whereas we do not have a universal score in the UK. Instead lenders, or indeed any organisation checking your Credit Report information, will use its own scorecard and interpretation of the data to come to a decision.

When you check your own Credit Report online, you’re likely to see different ‘scores’ everywhere you check. In contrast to FICO scores, these are generally intended as simple indications of how a typical lender would rate you.

What’s the difference between FICO and a Credit Reference Agency?

It’s important to note that FICO is not itself a Credit Reference Agency. FICO simply develops the scorecard (how scores are calculated) that the majority of US lenders use when assessing the creditworthiness of their prospective customers. The assessment itself is carried out on the data found on the applicant’s Credit Report, which will be held by one (or more) of the Credit Reference Agencies.

In the US, the Credit Reference Agencies are Equifax, Experian, and TransUnion. If these names are familiar it’s because we also have them in the UK, but with the addition of Crediva – a fourth CRA that holds public information like court records and Electoral Roll entries.

It’s worth pointing out that just because we share the same Credit Reference Agencies does not mean that your Credit Report at each of them will follow you should you move from the UK to America or vice versa. Your Credit Report in each country is specific to that country and, should you start a life abroad, your credit history will basically start from scratch in the new country.

When a US lender assesses a credit application, it will access a Credit Reference Agency’s database (possibly one, two, or even all three of them) to see the customer’s Credit Report(s). The lender will then apply the FICO scorecard to the data found on the Credit Report(s) to determine the customer’s score and whether they meet or miss the acceptance threshold.

FICO Pros and Cons

A major benefit of having a single, universal Credit Score like FICO is that you can more easily predict how a prospective lender will assess your application. If you check FICO online for yourself, there’s a good chance the number you see will be relatively similar to the score calculated by a lender during an application. This eliminates a good deal of the guesswork and ambiguity that surrounds lending practices, making the process simpler and more transparent.

Relying on one common Credit Score does carry some risk though. What happens when the company that calculates people’s scores decides to make an amendment to the algorithm? As we’ve seen, upwards of 40 million people can have their creditworthiness damaged, through no fault of their own, potentially making it more difficult and expensive to take out credit.

Is FICO really the one and only US Credit Score?

In practice (and especially in comparison to the UK), it is nearly that simple for US consumers.

Technically there are many variants of the same FICO algorithm for different purposes, such as auto lending, mortgages, and credit cards. This means there may well be differences between a number seen online and the number seen by a mortgage lender and a number seen by credit card provider.

Also, as FICO scores are calculated based on the data found in an individual’s Credit Report, the outcome will be dependent on which Credit Reference Agencies were used to access the data. For instance, an assessment using just one CRA may yield a different FICO score than if two or three CRAs were used.

Equifax, Experian, and TransUnion also provide their own scores to US consumers, just as they do with UK consumers, but they are mainly for consumer reference rather than for usage in credit checks.

Apart from these points though, the credit scoring process in US is fairly standardised thanks to FICO.

Credit Scoring: US versus UK

The US credit check is fairly straightforward: customer applies with lender; lender accesses customer’s Credit Report data; lender checks FICO score based on said Credit Report data; customer is accepted or declined accordingly.

There are of course some extra steps here and there (like checking vital details about identity, income, outgoings, and employment status to name just a few), but this basic outline shows how consistent most US lenders are when approving or declining applications.

UK consumers undergo a very similar process when making an application for finance or a product like a mobile phone, but a crucial difference is that there is no FICO Score to check. Instead of relying on FICO’s dominant and ubiquitous number, UK lenders generally calculate their own score – one that it impossible for you to check. This lender specific assessment will be unique to that lender and exactly how it’s calculated will be a tightly guarded secret – it’s certainly not as transparent as simply checking FICO online.

UK Lenders’ scores are often based on the applicant’s Credit Report data, consider factors like salary, employment status, and current financial commitments, and may be aided by a ‘Bureau Score’. The Bureau Scores are assessments calculated by a Credit Reference Agency, but they won’t resemble the ones you find by checking online – they’ll be for lenders’ eyes only.

Because UK consumers cannot foresee the exact score used by lenders during credit applications (unlike US consumers can with FICO) the odds might seem against you. Thankfully, there is a vital record that is key to UK credit checking and you can see it easily online – your Credit Report.

Until checkmyfile became the first company in the UK to give online access to their Credit Report information almost 20 years ago, it was even more of a closed box. We’re proud to have changed that.

Why are Credit Reports important?

Put simply, your Credit Report is the data that your scores are based on. In the UK and without FICO’s universal assessment, prospective lenders will assess your Credit Report on its merits themselves.

Instead of worrying about what type of score will be calculated, your efforts are better spent assessing your Credit Report and digging into the data to gain a proper and full understanding of the information. This way you’ll know exactly what a prospective lender will see whenever you make an application, including what’s hurting and hindering your creditworthiness.

Your Credit Report is your financial record of (usually) the last six years, and this information is collected and updated by the UK Credit Reference Agencies, Equifax, Experian, TransUnion, and Crediva. Your Credit Report will generally hold your account repayment history, including balances, credit limit, and whether all payments are made on time, as well as other information like Financial Associations and Court Records.

You’ll likely have one Credit Report at each of the four Credit Reference Agencies, each with potentially different information that will be seen should you apply for credit, a rental property, or even a job. To be thorough and accurate, it’s best to check all four of them. This way you’ll know for certain exactly what data can be accessed and analysed should you make an application.

The only downside of checking your Credit Report at all four separate CRAs is that it can be time consuming. Thankfully, checkmyfile makes finding all your Credit Reports quick and easy by bringing everything together in one place. Our Multi Agency Credit Report is the most detailed in the UK, providing your complete Credit Report data from Equifax, Experian, TransUnion, and Crediva, saving you the time and effort.

How can I check my Credit Report?

The only way to know for certain what information the four Credit Reference Agencies hold about you is to check your Credit Report at each of them. You can save time with checkmyfile, as our Multi Agency Credit Report compiles the complete information from all four CRAs in the same easy-to-understand format.

If you haven’t already, you can check your Multi Agency Credit Report with a 30-day free trial, which is then just £14.99 per month. Cancellation is quick and easy online at any time, or by freephone or email.

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