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FICO Service Adjusts Risk Models Based on Economic Conditions

Analytics-based service designed to help lenders improve their risk management practices.

FICO, a provider of analytics and decision management technology, today announced the availability of the FICO Economic Impact Service, an analytic service that helps lenders adjust their use of risk scores based on economic projections and lender-defined scenarios. With the ability to build on both internally derived score models and standard credit scores, such as the FICO 8 Score, the FICO Economic Impact Service is meant to provide lenders with insight into the changing nature of risk.

"Banks are experiencing tremendous pressure to balance demands for growth and profitability with the imperative to manage risk," said Dr. Andrew Jennings, chief research officer at FICO, in a statement. "Changes in unemployment rates, interest rates and other economic indicators often anticipate important marketplace movements. It can be extraordinarily difficult for even large lenders to objectively assess such external risks and adapt their credit decisioning systems quickly enough to be effective."

Many scoring models, including the FICO 8 Score, help lenders rank consumers based on risk. FICO Economic Impact Service gives lenders the added ability to scientifically calibrate credit risk estimates to expected market conditions, at the account level. The new service can be used to fine-tune lending strategies based on both positive and negative economic movement.

The service examines up to 150 different economic indicators, such as unemployment rate, interest rates and gross domestic product, then projects changes in risk using predictive analytics pioneered by FICO. Clients can choose how frequently they wish to examine economic indicators and correspondingly adjust their risk management strategies.

"Raiffeisen International chose FICO Economic Impact Service to evaluate potential risk changes in one of our largest Eastern European card portfolios," said Zsolt Jaczko, vice president and head of methodology and validation, Retail Risk Management for Raiffeisen, in a statement. "We're continually searching for ways to improve the risk performance of our portfolio, to reduce losses and to identify areas of profitable opportunity. FICO EIS quantifies how our portfolio risk will react to changes in regional economic shifts that will ultimately result in improved profitability for Raiffeisen."

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