What is a NextGen Score?

The NextGen score is a type of risk scoring model. A risk scoring model uses a complex equation to assess the risk of offering a loan to someone based on that person’s credit history. The number generated by this equation is a person’s credit score. The Fair Isaac Corporation (FICO) originally developed the risk scoring model used by TransUnion, Experian, and Equifax. Though they are not the only company to create such a model, theirs is one of those most used by lenders when evaluating people for loans.

However, in recent years, particularly with the economic recession, there has been a significant increase in subprime lending. Subprime loans are loans usually available to those with credit scores in the range of 500 to 630. Lenders charge more interest for these loans (compared to the interest rates for prime loans). Lenders were particularly eager to offer subprime mortgages. Unfortunately, there have been too many foreclosures associated with the higher number of subprime mortgages.

FICO has therefore created the NextGen risk scoring model. According to Fair Isaac, it was specifically designed to focus on the credit risk of individuals with subprime scores. Its goal is to more accurately predict which people are too risky to offer loans to by looking even more closely at past histories.

So what does this mean for consumers? For those with good credit scores, not much. However for those with bad credit scores, it could either be a positive or a negative. The NextGen score could reveal that someone with a bad credit score has demonstrated a small level of trustworthiness in the past, making it more likely for them to be able to get a loan. For those who had been able to slip under the radar as a subprime customer before now, the increased focus on those with subprime credit scores could make finding a loan much more difficult.

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