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...

1 Comment

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...


Risk & Compliance Are FICO Scores “Artificially Inflated?”

credit report

A recent Bloomberg article asserted that “consumer credit scores have been artificially inflated over the past decade,” as credit scores have steadily increased over the past decade of economic expansion.  The conclusion cited is that “debtors are riskier than their scores indicate because the metrics don’t account for the robust economy, skewing perception of borrowers’ ability to pay bills on time”. So are FICO® Scores “artificially inflated?”  The simple answer is no. FICO Scores Are Not Fixed Estimates of Credit Risk The FICO® Score is designed to rank-order the likelihood that a borrower will repay their loan(s), with higher scoring borrowers representing lower risk, and lower scoring borrowers representing higher risk.  The aim of the FICO® Score is to ensure that a pool of borrowers scored as a 660 at a given point in time represent lower risk of default than a pool of borrowers scored as a 620 at that... [Read More]

Leave a comment

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]

Leave a comment