You may not know it, but there is a credit-scoring revolution going on. Multiple industries -- wireless communications service providers, credit-card issuers, direct-deposit banks -- are shifting to alternative credit scores to supplement or even replace traditional credit-scoring models. This revolution is one that will ultimately redefine risk management in the mortgage industry. * According to one news account, there are more than 100 alternative credit scores in the marketplace. The scores run the gamut. They range from job-security credit scores to checking-account utilization scores to scores based on public-record data to scores built off of payday-loan performance. * There are also scores that look at aggregated demographic data, and a newer generation of scores that deliver insight into a consumer's stability by examining use of identity elements. For some scores, the secret sauce is analytics. Others rely on a unique slice of data. Whatever the origin, all of these scores share a common trait: They seek to optimize credit decisioning and draw insights beyond the confines of a traditional credit-bureau file. * This innovation did not happen overnight. In fact, for most of the past decade, alternative credit scores have focused on niche markets and have earned slow, incremental adoption by creditors. * In recent years, adoption of alternative credit models has accelerated. Why? Simply put, the marketplace for credit decisioning has changed. Regulatory and economic pressures are driving demand for more granular credit decisioning insight that traditional credit-scoring models cannot provide. This article explains why mortgage lenders should expect alternative credit scores to significantly impact their industry as well. Alternative credit scores
