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FICO Resilience Index Debuts

June 29, 2020

FICO Resilience Index is an analytic tool that complements the FICO Score and helps lenders, borrowers, and investors make more informed and precise decisions in assessing risk during rapidly changing economic cycles.

FICO research of more than 70 million consumer credit files from the Great Recession found that most consumers, including those with lower FICO Scores, paid their credit obligations and responsibly managed their financial affairs even under the challenging economic conditions of double-digit unemployment and low consumer confidence. While losses across all FICO Score ranges did approximately double (or worse) during the Great Recession, these incremental losses from the downturn were disproportionately concentrated in a small subset of consumers across all FICO Score ranges. With the FICO® Resilience Index, FICO can, for the first time, identify those consumers better positioned to weather an economic downturn and demonstrate that millions of those resilient consumers can be found in lower FICO ranges that could otherwise have their credit access cut off, curtailed or priced higher during an economic downturn.

Designed to complement the industry standard FICO® Score, the FICO® Resilience Index empowers lenders to consider the resiliency of a consumer when making credit decisions. This benefits lenders, consumers and the entire credit market by enabling more credit to continue to flow during an economic crisis. This new tool is designed to provide a better understanding and management of latent risk that is not evident in a strong economy but emerges when there is an economic downturn.

“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, FICO Scores. “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.”

Lenders often respond to economic uncertainty by raising credit score cut-offs. The FICO® Resilience Index allows lenders to identify those millions of borrowers that are resilient to economic stress and should not be subject to more stringent criteria. In addition to providing improved insight into individual borrowers’ financial resilience, the FICO Resilience Index also allows lenders to better predict how resulting loan portfolios will perform in changing economic cycles, facilitating improved capital coverage and more precisely tailored capital and securitization enhancement requirements.

"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,” said Tom Parrent, principal, Quantilytic. “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.”

Building on FICO’s legacy of innovation for over 30 years, the FICO® Resilience Index is the latest solution to assist lenders with the precise assessment of consumer credit risk. The tool is now available to lenders from multiple credit bureaus.

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