Risk & Compliance FICO® Score Distribution Remains Mixed


Based on a fresh look at the national distribution of FICO® 8 Scores, it appears that the profile of credit risk for U.S. consumers, while still mixed, may be slowly returning to a prerecession pattern. As my colleague Andrew Jennings has noted, people with higher FICO® Scores have generally increased their revolving credit usage since 2010. This trend is echoed in score distributions nationally during 2012 as the number of people with scores between 750 and 850 dropped slightly—from 37.4% in 2010 to 37.2% in 2012. Higher balances and higher credit utilization could help explain this modest downward shift in scores. At the lowest end of the score range, the number of people with FICO® Scores below 500 remained very low in 2012 by historical standards. During 2012, there was a modest increase of roughly 600,000 people at that score range between April (the data sample used in our last score distribution post) and the October data shown above. This may be partly explained by an increase last year in mortgage foreclosure rates. In general, the number of...

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Risk & Compliance How do FICO® 8 scores change the score distribution?


One reason there are more consumers today with scores at the high and low ends of the 300-850® score range for FICO® Scores is that we have improved the FICO scoring models. The newest version — the FICO 8 Score — is a stronger predictor of future credit risk. Because it is better at separating future good risks from future bad risks, the FICO 8 score redistributes some of the middle of the score distribution curve more appropriately out to the lower and higher score ranges.  For example, a comparison of the FICO® 8 score to the prior FICO® score on recent data reveals an additional 2.2% of the population is now scoring between 300-499. At the other end of the scale, an additional 1.3 % of the population is scoring in the 800-850 score range. Note that these score distributions are based on the same data sample — in other words, these changes don’t reflect increases or decreases in consumer risk, they represent an increased precision in assessing the consumers’ risk. The distribution changes produced by the updated score...


Analytics & Optimization Accelerating the Slow March Towards Digitization in the Insurance Industry: Part II

Accelerate digitization insurance

In our previous blog, we outlined five ways that insurers can adopt a decision-first approach to accelerate the digitization of your business. Below, we take a deeper dive into these areas. Adopt a decision-first approach: Rather than start with data, forward-looking insurers are defining their most critical business objectives and decision models before considering data and analytic requirements. Once the decision metrics have been identified – such as loss ratio, geographic distribution, growth, etc. – a carrier can assess data sources in order to gain customer insights and make decision at the exact right moment. The organization can then drive key decisions across all interactions and continuously improve so the next decisions are even more accurate. The leading decision management applications help businesses visually model their decisions before deploying them. Improve your agility by optimizing resources: Digitization is hindered when businesses can’t modify strategies quickly enough or respond to economic,... [Read More]

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Analytics & Optimization Accelerating the Slow March Towards Digitization in the Insurance Industry

Accelerate digitization insurance

Let’s face it – while many see digital disruption as the future in insurance, in fact new entrants into the space have been hindered by the product complexity, distribution systems and legacy infrastructure that the insurance industry carries with it. The landscape is changing, however – consumers (and businesses) are moving quickly to go with insurers that offer targeted, more transparent, 7×24 services. Digitization is indeed alive in insurance, it’s just taking longer to infiltrate – but it is arriving, and insurers that move quickly to upgrade their technologies – particularly, decision management systems – will gain (and grow) a distinct advantage over those who wait. Is the software to blame? Like the industry itself, the insurance software that is used to help make decisions is also stuck between business as usual and the immense possibilities offered by digitization. While policy and claim management system vendors have evolved product functionality... [Read More]

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Risk & Compliance Machine Learning and the FICO Score

Machine Learning and the FICO Score

Greetings from sunny (and humid) Miami!  I had the pleasure of speaking on a panel at ABS East yesterday, entitled “Traditional vs Non-Traditional Underwriting, Does Machine Learning Teach Us Anything New?” The panel primarily focused on the opportunities and challenges associated with the use of Machine Learning (ML) in credit underwriting.  I called out some highlights from FICO’s recent white paper on this subject. (We will dive into this further in future blogs so keep an eye out.) On the ‘opportunity’ side, I cited: The speed to powerful insights that ML offers, making it ideal for R&D efforts aimed at assessing new analytic challenges, and/or the potential of new data sources to add incremental lift. The great strides we’ve made at FICO as far as developing explainable artificial intelligence (AI)/ML and how that enables us to understand better than ever before what the key variables and risk patterns are that... [Read More]

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