FICO has announced the new ‘FICO Resilience Index‘ which is a tool that aims to help lenders assess risk in changing economic times. FICO developed the FICO resilience index based on data from 70 million consumer credit files from the Great Recession, FICO claims that while losses across all FICO scores approximately doubled during this period these losses were concentrated in a small sub set of consumers. This new tool aims to help lenders identify these consumers so they can better manage that risk.
The index gives consumers a score from 1-99, the lower a score the more resilient the model believes that consumer is (a score of 1 to 44 is considered resilient). The following factors are scored positively:
- Keeping credit utilization low
- Avoiding too many accounts
- Having a long credit history
This is similar to a traditional FICO score, but those scores put more weighting on payment history. At the moment this new resilience index is being launched as a pilot and as a consumer it’s unlikely it’s something you need to be too concerned about. FICO frequently releases new models and updates to old models but most financial institutions are slow to adopt these. For example FICO released the FICO 10 model earlier this year but many lenders are still using FICO 8 (FICO 9 was released more than five years ago).
