What is FICO® Resilience Index?
Fico now has another tool to calculate how consumers use credit. The FICO® Resilience Index was created specifically for hard financial times. Lenders will be able to decide if a consumer can handle his finances during hard times. They are referring to that as being resilient. The resilience score is meant to help lenders identify “consumers that are more likely to pay as agreed in the event of a recession”.
Why was FICO® Resilience Index Created?
The FICO® Resilience Index used 70 million people to calculate the risk of default in the case of an economic downturn. The researchers checked which people were able to handle their finances even during hard times. They discovered that many people who handled it well were those with low FICO scores. FICO decided to create this tool to help the lenders get a better picture of consumer’s credit. When lenders see how many consumers are able to pull through hard times, resiliently, they will approve new credit accounts for more people. With more credit accounts opening instead of closing, cash will keep flowing. This will keep the financial situation more stable.
How is FICO® Resilience Index Calculated?
FICO® Resilience Index calculates the following:
- Low credit utilization
- Few accounts (rather than too many accounts)
- Long credit history
- And more
The score is a number from 1-99. The lower your score is, the better you are able to handle your finances during hard times. This will allow lenders to give you more credit allowance.
How Will FICO® Resilience Affect Me?
Fico is quick to introduce new FICO scoring models but unfortunately, lenders are not so fast to adapt to them (or better said. trust them). Let’s wait and see if lenders will really use the FICO® Resilience Score. Or it will just stay in the closet together with a lot of other Fico scoring models including Fico 10, Fico XD, and more.