In the early months of the COVID-19 pandemic, FICO found that the FICO® Resilience Index was a strong predictor of the likelihood that a consumer would receive a loan accommodation (payment deferral, forbearance, etc.) following implementation of the CARES Act. In today's market conditions, we can observe the credit behavior of consumers who have exited these accommodations. New in-depth analysis indicates that, while recent overall bankcard default rates remained low by historical measures, those consumers identified as the least resilient prior to the pandemic have turned out to represent a much higher proportion of seriously delinquent accounts while also carrying significantly higher bankcard balances.
The New York Fed’s new report provides insight that credit card balances increased by $52 billion in the fourth quarter of 2021 and are only $71 billion off of pre-pandemic highs. Credit card limits, though, sit at an all-time high exceeding $4 trillion, highlighting the importance of managing exposure in times of economic uncertainty. Our recent research finds that, within each FICO® Score band, the bankcard borrowers identified as the least resilient as of October 2021 have had a strong appetite for new credit and carry much higher balances than resilient borrowers.
Figure 1: The least resilient quintile of borrowers identified by FICO® Resilience Index as of October 2021 are more likely to have opened a new bankcard account in the last year and carry considerably higher revolving balances.
FICO’s analysis of a representative national sample of U.S. consumer credit profiles found that roughly 7 million borrowers entered a bankcard accommodation early in the pandemic and had exited accommodation by October 2020. Of these borrowers, the least resilient quintile identified as of January 2020 were much more likely to go seriously delinquent on their bankcards between November 2020 and October 2021 after exiting accommodation. This can be seen in Figure 2 where, for example, the least resilient quintile among those borrowers with a FICO® Score of 660 to 679 have a higher proportion of seriously delinquent bankcard accounts than the most resilient quintile scoring 600 to 619.
Figure 2: On margin to FICO® Score 8, FICO® Resilience Index (FRI) predicts serious delinquencies among borrowers who have exited bankcard accommodations, consistent with findings on the overall bankcard accountholder population.
Less resilient borrowers tend to have more open bankcard accounts, and so those borrowers may contribute a disproportionate share of loss volume. Less resilient borrowers also tend to carry higher bankcard balances. Figure 3 shows the share of seriously delinquent (90+ days past due) bankcard balances within each FICO® Score band over the same recent one-year performance period, differentiated by borrower resilience. The high proportion of seriously delinquent balances attributable to the least resilient 20% of borrowers is stark, at almost 40% in sub-prime and near-prime credit tiers.
Figure 3: The least resilient quintile of borrowers carry higher total balances on their bankcard accounts and are also more likely to go 90+ days delinquent.
As inflationary headwinds, the Covid-19 pandemic, and geopolitical stress combine to create an environment of continuing economic and lending uncertainty in 2022, measures of borrower resilience such as FICO® Resilience Index can be used to improve risk decisioning strategies and better limit loss exposure.
For more information about FICO® Resilience Index and these insights, visit our FICO® Resilience Index product page or contact ScoreSupport@fico.com.
