Imagine all the people of the world united — under a single credit scoring model. Depending on whom you ask, the concept of a global credit score is either a far-fetched pipe dream or an eventual reality.
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Imagine all the people of the world united — under a single credit scoring model. Depending on who you ask, the concept of a global credit score is either a far-fetched pipe dream or an eventual reality.
Currently, moving across national borders means having to recreate a credit history from scratch in the new country. A global score would solve this problem by allowing your existing credit history — and score — to follow you wherever your travels take you. And though there’s debate as to whether a single global scoring model is a realistic possibility, even most supporters can’t see one emerging anytime soon.
Even as U.S. credit bureaus continue to introduce a variety of new credit scores in foreign nations, the idea of a one-size-fits-all credit scoring model certainly seems more like a pipe dream. In May, TransUnion and Credit Information Bureau India Limited (CIBIL) introduced the CIBIL TransUnion Personal Loan Score, described as “India’s first and only personal loan score.” That same month, TransUnion also introduced the first generic credit score for Honduras, TransUnion Score Predictivo. Meanwhile, leading U.S. credit score company FICO has versions of its scoring model in about 20 countries. Against that backdrop, some experts say uniting the globe under a single common scoring model is impossible.
“Dependence on the local bureau data/score rather rules out the idea of a ‘global credit score’,” says Experian Decision Analytics’ head of global bureau analytics, Simon Harben.
Some are even more emphatic in their dismissal of the concept. Although Chet Wiermanski, group vice president of global analytics with credit bureau TransUnion, says he usually never says never, he still doesn’t expect to ever see a universal credit score. “Not in my lifetime, and I’m a fairly young man,” he says.
Why? Plenty of reasons. Different cultures value different traits in different ways. Reporting rules and laws vary widely from place to place. And sometimes, for whatever reason, data just aren’t available. (For more on the differences among international scoring models, see Credit scoring goes global.)
Others disagree. “Of course we could see a global score used across nations, but it would not be as good as national scores,” says Graham Platts of GDSLink Inc., in an e-mail. “However, people may go for it because they are willing to sacrifice a bit of predictive power (and hence, bad debt) in return for ease of use, consistency, speed to market, for example.”
|Credit scores around the world|
|Below is a list of the nations in which the largest U.S. credit bureaus and credit scoring firm have credit scoring models in place.|
FICO (20 countries)
TransUnion (12 countries)
Experian (60 countries)
FICO says that goal may be closer to a reality. “The FICO scoring model is designed to be able to scale across national borders. This means that a FICO score of 714 in Russia will mean the same level of credit risk as a 714 FICO score in Brazil. This scaling could be quite important to global lenders operating in both countries, so it could be considered a global credit risk scoring system, in that sense.” says FICO spokesman Craig Watts in an e-mail. “FICO has already worked with international lenders toward that vision, but it’s still in the early stages.”
Several researchers have tested the idea of a generic score. The University of Edinburgh’s Galina Andreeva, Jake Ansell and Jonathan N. Cook tested a single scoring model on three European nations — Belgium, Germany and the Netherlands — and found that the similarity of the three countries enable a single scorecard to provide “adequate predictive performance comparable to that of its national counterparts.”
“Such a performance can be attributed to the relative similarity of the countries used in the analysis, which means that it is possible to select a set of characteristics that could be harmonized across three countries,” the the paper notes.
Due to the lower cost of developing and maintaining generic credit scores, the authors say such models offer “a viable and attractive option” for parts of Europe. Nevertheless, they acknowledge that borrowers who were approved by their generic model differed from those approved by the national model on a number of characteristics. That means such generic scoring models could present problems in terms of making a “fair” credit decision amid regulations from country to country. That objective would also require the harmonization of data across Europe.