FICO® Launches its Resilience Index

What is a Resilience Index?

FICO®, a data analytics company, has launched a new score, similar to a credit score, which measures a person’s financial resiliency. A traditional credit score predicts a borrower’s credit risk, regardless of economic conditions. The new FICO® Resilience Index, on the other hand, predicts how well borrowers fare during times of economic downturn.

The scale gives borrowers a score between 1 and 99. A lower score means a person is more resilient and a higher score means they are less resilient.

Helping Lenders Make More Sophisticated Decisions

FICO® has analyzed more than 70 million consumer credit files since the last recession. The company has traced patterns and figured out which types of borrowers tend to miss payments during times of economic downturn, and which types do not.

Payment history accounts for 35% of a person’s credit score—more than any other single factor. But payment delinquency does not matter as much for a person’s FICO® Resilience Index Score. Instead, the new score weighs low account balances and low utilization of available credit more heavily. Jim Wehmann, Executive Vice President of FICO® Scores explained , “For the very first time, we can help lenders and consumers identify those who are going to be more sensitive to the downturn and those that are going to be just fine.”

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Future Plans

Traditionally during economic downturns, lenders decide to raise their lending thresholds. FICO® hopes this new scoring system will help lenders make more sophisticated decisions about which borrowers are risky and which are not when the economy is not strong.

FICO® will launch the new system by giving lenders that are already using their credit scores free access to consumer resilience scores. The company is also making plans to allow consumers to check their scores and improve them as well.

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