A continued weapon in lenders' risk management arsenal will be the FICO credit score, says Lisa Nelson, VP of global scoring solutions for Minneapolis-based Fair Isaac. According to Nelson, this spring Fair Isaac will introduce the latest version (FICO 08), which is designed to be more sensitive in scoring individuals. FICO 08 will be part of the company's new Risk Management Suite, she explains, along with features such as the Credit Capacity Index, which gives lenders better insight into someone's capacity to take on more debt; Portfolio Stress Testing, which provides portfolio-level analysis so lenders can run "what if" scenarios; and Fair Isaac Insight, a program with which the company aims to educate the market on sound lending practices.
Nelson adds that she expects to see an increase in the practice of lenders pulling FICO scores of existing customers to obtain a better understanding of their ongoing credit situation. "This is a very common practice and many lenders are stepping up that activity," she says.
Edmund Tribue, global leader, risk management practice, with MasterCard Advisors (Purchase, N.Y.), says the credit score is a valuable tool and can be enhanced further if it is used with other elements. "Credit scores used in conjunction with behavior profiles can look at the lifetime credit performance as the score migrates up or down. You can rank-order risk this way," he explains. "Where institutions get in trouble with the credit score is in not structuring the product appropriately to the risk. Understanding the components of the score and how it fits into your business model is vital."