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FICO introduces FICO Resilience Index to keep credit flowing during economic downturn

By Pavithra R

June 30, 2020

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Sally Taylor, vice president and general manager, FICO Scores

FICO, a global analytics leader, has announced the launch of the FICO Resilience Index, an analytic tool that is designed to complement the FICO Score and helps lenders, investors, and borrowers make more informed and precise decisions in assessing risk during rapidly changing economic cycles.

The FICO Resilience Index offers lenders and investors a refined tool to help identify those consumers across FICO Scores bands that represent higher resilience during an unexpected economic disruption. The solution complements the industry standard FICO score by empowering lenders to consider the resiliency of a consumer when making credit decisions.

The FICO Resilience Index’s scale provides an additional layer of insight to help more accurately capture the resilience of a consumer and empower lenders to provide access to credit during uncertain times. The solution expects to benefits lenders, consumers and the entire credit market by enabling more credit to continue to flow during an economic stress.

“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. 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,” said Sally Taylor, vice president and general manager, FICO Scores.

It provides a better understanding and management of latent risk that is not evident in a strong economy but emerges when there is an economic downturn. Unlike the FICO Score, which ranges from 850 to 300, the FICO Resilience Index outlines a scale from 1-99. Consumers with scores in the 1 to 44 range are viewed as the most prepared and able to weather an economic shift.  Lenders often respond to economic crisis by raising credit score cut-offs. The solution allows lenders to identify borrowers that are resilient to economic uncertainities and should not be subject to more stringent criteria.

In addition to providing improved insight into individual borrower’s financial resilience, the FICO Resilience Index also allows lenders to predict how resulting loan portfolios will perform in changing economic cycles, facilitating improved capital coverage and more precisely tailored capital and securitisation enhancement requirements.

The FICOResilience Index can also help address: better portfolio management, regulatory stress tests, better loss allowance estimations, transparency within the secondary market.

“This innovation addresses an issue witnessed in the previous financial crisis, in that financial institutions have been limited in their ability to calculate how resilient individual consumers are in the presence of an economic downturn. Through more precise credit analytics, lenders concerned about increased economic stress can maintain lending to more consumers, while still protecting their portfolio. Broader lending to more resilient borrowers may even soften the impact of a downturn should it occur,” said Tom Parrent, principal, Quantilytic.

Recently, FIS partnered with FICO to build a new financial crime management solution.

Established since 1956, FICO is a leading analytics software company, helping businesses in 90+ countries make better decisions that drive higher levels of growth, profitability and customer satisfaction.

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