FICO, a global leader in analytics and credit scoring, is rolling out a new “FICO Resilience Index” this week. The new index helps lenders better identify borrowers well-equipped to withstand difficult financial situations. Here’s what you need to know about the new FICO Resilience Index.
What Is the FICO Resilience Index?
FICO claims its new Resilience Index will help lenders easily identify those consumers better positioned to withstand demanding economic environments. These challenging situations include economic downturns, recessions, depressions, and even pandemics – like the current COVID-19 outbreak.
The score, which ranges from 1 to 99, identifies borrowers by their resilience against harsh economic conditions, with 1 to 44 considered “resilient”. Essential factors in determining a consumer’s score include:
- Maintaining a low credit utilization rate
- Avoiding opening too many new accounts
- Having a long credit history
This new index differs from the existing FICO Score, as it places greater emphasis on credit utilization and history. The FICO scoring system, on the other hand, places more weight on payment history – worth approximately 35% of an individual’s credit score.
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Developed Using Data from the Great Recession
The design of the new FICO Resilience Index is to be a complement to the current FICO 10 scoring model. FICO bases the Resilience Index on data from over 70 million consumer credit files from the Great Recession of 2008.
FICO’s data analysis showed that while the recession led to double-digit unemployment and a reduction in consumer confidence, most financial losses were concentrated to a disproportionately small set of consumers.
“Identify Resilient Borrowers”
“Lenders and investors need to be able to evaluate and manage portfolios based on rapidly changing conditions, to further safety and soundness in credit as well as support the global economy,” said Sally Taylor, vice president and general manager of FICO Scores, in a press release. “Consumers benefit when lenders have the tools to identify resilient borrowers, enabling lenders to price their products more competitively and to responsibly provide greater access to credit than they would otherwise be able to do.”
FICO is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 195 U.S. and foreign patents on technologies that increase profitability, customer satisfaction, and growth for businesses in financial services, telecommunications, health care, retail, and many other industries. The FICO Scoring Model is used by over 90% of lenders to determine the lending risk to consumers worldwide.
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