The first two of these analytics will assess the capacity of consumers to handle additional credit, and show how individuals’ risk would change under different macroeconomic conditions.
These analytics will complement Equifax’s RN4 suite of risk scores, further helping credit granters reduce losses while extending more credit based on a comprehensive evaluation of each consumer’s risk.
FICO will develop UK-specific versions of its FICO® Credit Capacity Index™ and FICO® Economic Impact Index, both based on robust data from Equifax. Worldwide, the two companies deliver a combined volume of scores greater than any other company.
This new initiative has been welcomed by financial institutions looking for powerful new tools to grow profitability while complying with industry regulations, as Mark Thundercliffe, chief credit officer for HSBC in the UK, explained.
“We have reviewed FICO and Equifax’s plans and we are excited about the concept of this kind of approach to risk scoring,” said Thundercliffe. “New scores such as these will help us continue to drive high credit quality standards, growing our business profitably and in compliance with industry regulation.
“We are committed to working with our suppliers to test these concepts and help them develop the most powerful solutions for a dynamic economic market.”
Both of the scores in development bring new insights to credit evaluation:
The FICO® Credit Capacity™ Indexgoes beyond traditional income-based measures of assessing consumer debt capacity, using a patented analytic approach. The score will analyze Equifax consumer credit information to provide a consistent, objective, and accurate measure of how taking on additional debt would affect a consumer’s credit risk. The combination of the FICO Credit Capacity Index and Equifax RN4 scorecards will enable lenders to offer credit to customers who can manage it, supporting growth strategies while ensuring the fulfilment of the “Treating Customers Fairly” requirements to assess affordability.
The FICO® Economic Impact Index will help lenders understand how future economic fluctuations may affect a consumer’s Equifax RN4 credit score. The patent-pending analytic will indicate the projected positive/negative impact on a specific Equifax RN4 score range based on selected economic forecasts. With this information, lenders can make informed decisions about modifying score cutoffs for account originations and portfolio management decisions, and improve their risk management through different economic cycles.
“The sluggish economic recovery has put additional pressure on British consumers and their debt obligations,” said Mike Gordon, vice president and managing director of Europe, the Middle East and Africa for FICO. “We are working with Equifax to develop scoring solutions that enable healthy lending growth that benefits consumers, lenders and the economy.”
