All posts by Rachel Bell

Risk & Compliance Australians All Let Us Rejoice: Embracing Positive Credit Data


According to a new report from the Australian Retail Credit Association (ARCA), 62% of Australians fully support the country's newly introduced credit reporting system—which, for the first time, will consider positive credit behavior. The favorable reaction by Australians is hardly surprising. The previous negative-only reporting system often punished consumers. It meant that their credit reports were assessed based only on bankruptcy or loan defaults, even if a blemish occurred many years ago or involved a minor sum of money. The policy was very much at odds with the Australian ethic of a “fair go”—an ethic I learned about late last year when I spoke at the ARCA conference. The latest reforms change privacy legislation to give Australian lenders a more complete picture of a borrower's credit history and ability to pay. Additional information being reported will include an individual's credit account types, status, limits and up to 24 months of repayment history. This will allow lenders to make more informed decisions that reward good...

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Risk & Compliance Ranking UK Consumers’ Credit Capacity


As the UK economy continues to improve, lenders are increasing lending again — in a survey that FICO will announce next week, 100% of UK risk managers who responded said that lending more to consumers was a priority for 2014, and 27% said it was a top priority. At the same time, lenders are cautious about taking on additional risk. This is what makes the FICO® Credit Capacity Index™ so attractive. This score rank-orders consumers by their ability to handle additional credit, which could be fundamental in helping UK lenders improve profitable lending growth. Our latest validations show the strength of the FICO Credit Capacity Index, built on Equifax’s market-leading risk score, Risk Navigator 4 (RN4). We applied CCI to 275,000 UK consumer credit applications for credit line increases, current accounts, credit cards and personal loans. The performance of these accounts a year later, as well as the estimated performance for consumers who were declined, showed that CCI used with RN4 strongly rank-ordered borrowers. For borrowers who applied for a current...

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Risk & Compliance Making Ability to Pay Compliance Work for You


The ability to pay provision continues to be one of the biggest compliance hurdles of the Credit CARD Act. Many lenders have approached this as a purely “check-the-box” task, hoping to comply with minimal impact to existing processes. Instead, is it possible to not only comply, but also gain value in the process? We’ve been working with clients to do just that—in other words, to avoid added compliance costs that don’t produce a return. Here are some recommended best practices. Tailor your strategy to credit lifecycle. Use lifecycle as a guide to make compliance investments where supported by a strong return. At origination, for instance, lenders can easily request consumer income directly, whether on an application, at retail point of sale or through a customer-initiated credit line increase. This cost-effective tactic is fully aligned with the spirit of the regulation. By contrast, account management decisions, such as automated line increases, present the largest challenge and require the most design. I’ll share few ideas for how to tackle this...

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Risk & Compliance FICO® Scores Reflect Slow Economic Recovery


Our FICO Labs team has taken a fresh look at national distribution of FICO® 8 Scores. With a couple of interesting exceptions, we found that consumer scores are continuing their slow return to a pre-recession pattern.  The first two years of the recession (2008-2009) moved the scores for millions of people into the lowest (300-499) and the highest (800-850) segments of the FICO® Score range. Correspondingly fewer people had scores in the middle range (600-749). In an earlier post, I explained why these separate shifts happened. This flattening of the distribution curve peaked in 2009-2010 and has since slowly been reversing. However, the latest numbers suggest two unusual patterns in this recovery. First, the quantity of people with very low scores has continued to drop and is now well below pre-recession volumes. In 2005, 14.6% of consumers had scores at the bottom of the score range (300-549). In 2012, the corresponding figure is 14.2%, which is 0.4% lower. This means that about 800,000 fewer people have such low scores today. At the highest part of...


Risk & Compliance More consumers nearing perfect FICO® Scores, but are scores improving?


My colleagues in FICO Labs monitor FICO® Scores and how they move over time. In our most recent review, we continue to see the effects of consumers’ scores moving up AND down. At the high end of the score distribution, the number of consumers in the 800-850 range is at its highest level since October 2008. Some 18.3 percent of consumers have FICO® Scores in this range. Contrast that with the 15.5 percent of consumers between 700-749, which is the lowest percentage we’ve seen since we began tracking this information in 2005. And the percentage of consumers between 750-799 (19.4 percent) is the lowest we’ve seen since April 2009. We also found that 31.9 percent were in the 550-699 range. That is the most people with scores in that range since 2006. It’s clear that there’s been a shift at both ends of the score distribution. Many consumers have moved into the top tier of the FICO® Score range by redoubling their efforts to maintain an excellent credit profile. Others have fallen into lower tiers, most likely due to the financial stress felt by many...


Risk & Compliance Credit Reports ≠ Credit Scores


More than ever, consumers are interested in their credit scores and credit reports. They ask questions when banking, paying bills online and shopping for a loan. This puts pressure on lenders to equip their employees with good answers to such questions. ( is one source for those answers.) Unfortunately, this work is made tougher when credible sources get even the simplest points wrong and confuse everyone. In October, an article posted on contained the headline “10 Ways a Bad Credit Score Can Hurt You.” As I read through the “ten ways,” I realized that credit scores were cited in only five of them. Fully half of the article focused on credit reports, not credit scores. The publication made the same mistake again this month in a new article “Should Your Credit Rating Scare You?” This isn’t just a semantics issue. Such mistakes lead consumers to incorrectly assume that credit reports and credit scores are synonymous, or that credit reports automatically include credit scores. Journalists tell us that people frequently complain to...


Risk & Compliance Recession causes FICO® Score swings


Last month I posted that the national distribution of FICO® 8 Scores has had two major shifts during the recession. Some readers were puzzled that the observed shifts weren’t significantly larger, in light of the sour US economy. Actually, what appear to be small national shifts are quite dramatic changes, in FICO’s experience. The reality is that, despite all the gloomy economic news, the great majority of Americans continue to pay their bills and manage their credit in ways that maintain or reduce their risk of default. Think of them as a silent majority. Their scores tend to balance out the downward pull on national score distribution caused by people suffering through unemployment and financial hardship. But those puzzled readers have a point—is the recession more evident at an individual score level? The answer is yes. Here’s what that looks like.   In the worst part of the recession from 2008 to 2009, the FICO® 8 Scores for approximately 50 million people declined by more than 20 points. Two-fifths of this group (nearly 21 million)...


Risk & Compliance Credit Counselors Stumped


This week, hundreds of credit counseling executives gathered in San Francisco for the annual leadership conference of the National Foundation for Credit Counseling. I participated on a panel to address what The New Credit Normal promises for consumers. As I explained, regulators are helping to empower consumers by having creditors include the underlying credit scores in adverse action notices and in risk-based pricing notices they send to consumers. I also pointed out the unintended consequences that well-meaning government officials can create for all consumers when they limit the negative information that credit reports can contain. I was surprised and struck by a deep frustration I heard from these counseling experts. Due to the nature of their work, during tough economic times they expect to be – want to be – overwhelmed with work. But as I heard, many consumers simply aren't reaching out for help. Why isn't at all clear. One counselor suggested tongue-in-cheek that consumers are afraid of being yelled at for having behaved badly. I almost wish...


Risk & Compliance FICO® Scores Shift During Recession


A comparison of nationwide FICO® Scores from 2005-2011 illustrates that score distribution has remained relatively stable at a national level. However a close look at the numbers suggests that U.S. lenders have experienced two distinct phases of consumer credit risk in the recession thus far. Early in the recession, lenders saw a sizeable increase in the number of consumers who scored in the lowest (300-499) and the highest (800-850) segments of the FICO® Score range, and a corresponding drop in the volume of consumers at the middle range of 600-749. In our experience, this movement toward the tails of the FICO® Score distribution curve is typical during economic downturns. The downward shift likely is a result of quick credit problems experienced by consumers who are highly leveraged, leading to serious delinquencies and bankruptcies that push their risk scores toward the low end of the score range. At the same time, mainstream consumers may instinctively move to protect their finances by paying down revolving debt, postponing new purchases that would...

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Risk & Compliance 10 Most Confusing Things About Credit Scores


In a recent joint “TweetChat” with, we fielded hundreds of questions from participants on the specifics of a FICO® Score. Their questions ranged from basic to complex, reminding us that as consumers become more credit savvy, the complexities of the FICO Score can still be confusing even to a student of credit. Here are some of the most popular questions from the session. Our answers may prove useful as your bank or credit union responds to similar questions from your customers about credit scores. What’s the difference between a credit report and a credit score? Does a credit report include my FICO® Score?Your credit report doesn’t contain any scores. Credit reports and scores are very different kinds of information. Your credit report contains information about your credit history gathered by the credit bureau from your lenders, state and county courthouses, collection agencies, and similar sources. This information shows your pursuit, use and repayment of credit. A credit score helps lenders interpret the data on your...