What a year this is shaking out to be. We recently completed the FICO® Score 9 development at all three Consumer Reporting Agencies (CRAs) and are now working with them to make these models generally available. Now that the scores have been launched, I wanted to take a moment to summarize some of the key benefits you will see.
The Voice of Customer sessions we held with our clients helped define our research focus and development objectives for FICO® Score 9. Over the several years, we’ve been researching and developing various features of the new score. Here’s a summary of some of the key features of FICO® Score 9.
- Refreshed – FICO® Scores are redeveloped periodically to account for a changing credit landscape and to incorporate advancements in predictive modeling. Much has happened since FICO® 8 was released – between the mortgage crisis and the ensuing recession, the credit landscape has changed considerably and only recently have things stabilized. While our scores are robust and proven to withstand the economic storm, the time was ripe to develop a new FICO® Score built on data that reflects the most recent economic conditions and the new normal that we operate in.
- Enhanced Treatment of Collections – With every FICO® Score development we always challenge ourselves to see if there’s a better way to evaluate credit information. With FICO® Score 9, we made two major changes to how we assess collection agency accounts: FICO® Score 9 will ignore all paid collections and FICO® Score 9 will assess medical collections separately from non-medical collections. There’s a lot of juicy stuff here so a deeper dive for this feature will be addressed in a future blog.
- Effective Risk Prediction Across All Industries – More organizations are relying on a single score throughout their enterprise so that all lines of business can operate with a ‘lingua franca’ of risk. As a modeler, this creates a daunting challenge for us as we need to build a score that is going to provide value across all major product lines and for both account management and originations. Necessity is the mother of invention and as a result, a new Multi-Faceted Modeling approach was developed for this version of the FICO® Score. There’s a really great story on this feature so stay tuned to learn more about it in an upcoming post.
- Ease of Adoption – Building FICO® Scores for 25 years, we received invaluable feedback from clients with every new release. That makes us mindful of the changes and enhancements we make. Because substantial score distribution shifts can represent implementation hurdles for lenders, we don’t engineer change for the sake of change and only ‘necessary’ shifts are incorporated based on enhancements that provide value. While our primary objective is to make the scores as predictive as possible, another key objective is to minimize implementation and adoption hurdles. So in addition to minimizing unnecessary shifts in the score distribution, we’re honoring our clients’ desire to keep the score range and reason codes the same.
- More Predictive Assessment of Thin Files – As lenders refocus efforts on safely growing their portfolios there is a renewed interest in consumers with a limited credit history. FICO® Score 9 will be more predictive at evaluating so called ‘thin files’, or files with limited credit histories.
- Consistency – We’ve learned that score differences across the bureaus are primarily driven by variations in the data at each bureau. However, our clients expressed a desire for the scores to be made as consistent as possible while still leveraging the unique data at each bureau. To facilitate a greater degree of consistency across the three US credit reporting agencies, for the first time FICO® Score 9 was developed using the same October 2011 to October 2013 timeframe.
- Model Governance and Support for Regulatory Compliance – The regulatory climate today is very different from when FICO® Score 8 was developed. Though FICO® has always helped our clients with these efforts, we understand that a greater degree of transparency is required from score vendors. To that end, we have enhanced our documentation to ease the burden associated with model risk management and regulatory compliance responsibilities.
Over the years, we have learned a lot from the conversations with our clients and our successes raise the bar higher and higher with each subsequent generation of the score. Because of the strength and robustness of our earlier scores, the challenge to leapfrog our existing scores is considerable. I believe we have cleared that very high bar and I’m really excited about the upcoming launch of the next FICO® Score. The time is right for a new score in this new economy and I look forward to talking more about some of the specific features of FICO® Score 9 in future posts.