Credit Scoring in the Twenty-First Century

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In this issue:

- Introduction

- The Issue: Operational Risks Posed by Reliance on a Single Third-Party Credit Scoring Provider

- Risks to Financial Regulator

- Obstructed Oversight 4 Political Risk and the Need to Temper Trust with Verification

- Risks to the Lending Industry

- Obstructed Model Risk Management

- Potential for Scarcity of Supply

- Safety and Soundness Fallout

- Risks to Consumers

- Inequality in Eligibility for Affordable Credit from Mainstream Consumer Credit Sources

- Unavailability of Key Data to Access Consumer Credit

- Lost Opportunities for Beneficial Consumer Financial Education

- Risks to the U.S. Economy

- The Solution: Acceptance of Greater Diversity in the Provision of Third-Party Credit Scores

- Open the Consumer Credit Markets to Non-Legacy Providers of Third-Party Credit Scores to Provide Innovative and Transparent Credit Score Models

- Expanded Access to Affordable Credit

- Greater Predictability and Improved Risk Assessment Accuracy

- Reduced Operational Risk

- Current Barriers to Acceptance of Diversity among Providers of Third-Party Credit Scores

- Tradition

- Unintentional Legacy System Brand Endorsement

- Actions Financial Regulators May Take to Welcome Non-Legacy Providers of Third-Party Credit Scores

- Why the Time Is Ripe for an Improvement in the Third-Party Credit Score System

- Conclusion

- Excerpt from: Tradition:

When third-party credit score models were first introduced in the twentieth century, one entity provided virtually all such scores, as is often the case with a nascent industry. Over time, that entity became synonymous with the term “credit score,” just as “Xerox®” has (improperly) become interchangeable with the term “copy,” and the word “Kleenex®” is frequently used by consumers, albeit improperly, to refer to “facial tissue.” References to this one legacy third-party credit scoring entity thus became pervasive in the consumer credit marketplace as third-party credit scores became integral to the largely automated underwriting process.

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