FICO Resilience Index
FICO, the company that standardized a credit scoring model to allow lenders to evaluate a person’s ability to repay a loan has now added a new tool called the FICO Resilience Index. This measurement can be used to determine a consumer’s ability to withstand uncertain financial times.
It uses credit bureau information from before and after the Great Recession of 2007-2009. It operates on a scale of 1 to 99 with lower index ratings indicating more resilience to fare financial turmoil. This index will not replace the credit score but be used together with it to evaluate the risk.
Higher resilient consumers are expected to have had fewer credit inquiries during the last 12 months together with fewer active accounts with lower total balances. This would tend to indicate that the consumer has more experience in managing their credit.
It is expected that this tool will provide some consumers with lower credit scores to qualify based on this indication that they’re capable of getting through tough financial times. A good credit score indicates they will meet their credit obligations during normal times. This new index factors in what may happen based on an economic downturn.