New FICO Resilience Index may help extend credit availability



Fair Isaac Corp., the organization that created the widely used FICO credit score implementation, has created a new credit index that it says should help more people to qualify for a home loan.

The new FICO Resilience Index is intended to supplement the FICO score, and is said to help lenders assess borrower’s ability to withstand any economic downturns should they have a low credit score.

The index works by culling information on people from before and after the Great Recession in order to estimate their likelihood of being able to pay their bills during financially-challenging times. Consumers are rated on a scale of 1 to 99, with a lower score indicating “greater financial resilience” during times of economic volatility, FICO said. Meanwhile, higher scores indicate greater sensitivity to economic shifts.

“Our hope is that it will allow lenders to continue to be able to make prudent loans,” said Joanne Gaskin, vice president of scores and analytics at FICO. “Lenders are going to feel more comfortable continuing to approve borrowers rather than denying them.”

The new index was created because the industry felt that the FICO score by itself might not be “a clear indicator of a consumer’s current financial health,” during the current economic environment, said realtor.com senior economist George Ratiu.

The new tool places less weight on missed payments, adding more emphasis to lower account balances and credit use instead. Meanwhile, a traditional credit score evaluates borrower’s ability to meet payment obligations and is based on their previous payment history. The higher the FICO score, the less likely that person is to default on a loan.

FICO said that more resilient consumers during economic downturns tend to have fewer credit inquiries in the last 12 months, less active accounts, lower total revolving balances and more experience at managing credit.

As such, the new index may help borrowers who have a low FICO score look more creditworthy to lenders, said Jim Wehmann, executive vice president of FICO Scores, in an interview with Forbes.

“Using this tool, lenders can have this visibility and lend confidently to millions of consumers that may have below-average FICO scores,” Wehmann said. “A robust 680 may perform better than an average 720 credit score.”

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