FICO

FICO

Gerald Fahner, Senior Principal Scientist, FICO Scores and Analytics
FICO
San Jose, CA
Industry: Analytics

Business Challenge

FICO’s business challenge was to develop a new analytic solution that would help lenders more precisely predict a borrower’s resilience to potential future economic disruptions.

Analytics Solution

In response to this challenge, FICO developed the FICO® Resilience Index. The FICO® Resilience Index is designed to rank-order consumers with respect to their resilience or sensitivity to an economic downturn. It can provide insights such as which consumers with equivalent FICO Scores of 680 are more likely to go seriously delinquent when economic stress arises— giving lenders a new tool that can help them avoid taking overly broad measures that impact insensitive or more resilient consumers unnecessarily.

The FICO® Resilience Index was developed using U.S. credit bureau data collected during two starkly contrasting phases of the economy. We measured payment performance for a set of consumers who experienced the stable, benign economy between October 2013 and October 2015. Through established modeling methods, we composed an identically sized set of “twin” consumers who shared very similar characteristics but instead experienced the Great Recession between October 2007 and October 2009. The difference in payment performance for these sets of consumers under normal vs. stressed conditions quantified their resilience to economic stress and provided the analytical basis for the FICO® Resilience Index model.

Impact

The primary benefit lenders obtain from using the FICO® Resilience Index is the ability to enhance their portfolio resilience over time, which in turn leads to better business outcomes when serious economic stress materializes. Lenders can maximize this benefit by incorporating the FICO® Resilience Index into account- and consumer-level decision strategies, including setting of initial line or loan amounts, pricing, credit line management and collections. The FICO® Resilience Index is available at all three credit bureaus.