Definition
NextGen scores are the latest credit risk scoring model developed by Fair Isaac Corporation to serve lenders in subprime lending markets.
Analysis
NextGen was created by Fair Isaac to alter the existing FICO based predictability models to provide greater focus on consumers with bad credit histories. The purpose is to provide enhanced predictability for poor credit risks.
NextGen is not substantially different from classic FICO scoring models for traditionally served consumers. Where NextGen is different is in the enhanced focus on the entire risk spectrum, which allows for greater emphasis on subprime borrowers.
According to Fair Isaac, use of NextGen scores can allow lenders to safely offer loans for bad credit borrowers at rates between 10% and 25% lower than by using classic FICO scores. In addition, it is predicted that approval rates will increase by 5% by using NextGen.
NextGen is not as radical an approach as Fair Isaac’s FICO Expansion score, which includes alternative forms of credit. It is instead based on the same records that classic FICO scores rely on.
NextGen scores are available to lenders through the three main credit bureaus:
- TransUnion provides FICO Risk Score, NextGen
- Experian provides Experian/Fair Isaac Adanced Risk Score
- Equifax provides PinnacleSM score
NextGen is the key type of credit score that allows for lenders to more aggressively target consumers with poor credit histories. This is one segment of underserved markets that are the focus of the Community Reinvestment Act.
