FICO’s Resilience Index Predicts Borrowers’ Risk During Economic Uncertainty

In an effort to keep credit flowing amid uncertain economic conditions, FICO has unveiled its FICO Resilience Index. The tool is meant to complement the FICO Score and allow lenders to take into account an individual’s resiliency as they arrive at credit decisions, according to an announcement.

FICO said lenders will many times contend with economic uncertainty by increasing credit score cut-offs. The FICO Resilience Index, however, lets lenders find millions of borrowers who can withstand economic pressure and shouldn’t need to follow stricter standards.

FICO Scores Vice President and General Manager Sally Taylor said in an announcement, “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.”

Taylor continued, “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.”

As it stands, FICO’s research into over 70 million consumer credit files from the Great Recession discovered that many consumers, with the inclusion of those who have lower FICO scores, satisfied their credit obligations and handled their financial affairs well even with difficult economic conditions.

It’s not out of the question to see a credit union suddenly encounter 15 percent of its membership roster contending with unemployment and deciding if they should invest their stimulus package money.

PSCU President and CEO Chuck Fagan said in a PYMNTS interview in early June that relying on FICO scores is an inefficient way of gauging risk for credit unions that have “single sponsor type relationship” in which the sponsor has been heavily impacted by the pandemic

In March, news surfaced that credit bureaus were seeking to bolster “thin” credit files of borrowers who don’t have sufficient credit history to qualify for loans via the traditional FICO credit score by rolling out new products that harness data that hadn’t usually been taken under consideration by banks under the credit-scoring process.