Innovation Never Sleeps: Why We Redevelop the FICO® Score

Look around. How many people do you know that already have the iPhone 11? Many consumers seem to always have a device that is in lockstep with the latest in cutting edge technology. These consumers are a large part of the reason why Apple releases new versions of their phone on a regular cadence. By doing so, they ensure that their product offering captures the latest technological advances, and accounts for changes in how consumers are interacting with their phones, what they are using their phones for, etc. At the same time, these newer versions all share a similar base level of design and functionality, just with unique updated features added to meet evolving user needs.

It is a similar story for FICO® Scores.  Each FICO Score version has a similar underlying foundation, and all versions very effectively identify higher risk borrowers from lower risk borrowers. Every time a FICO Score is updated it incorporates unique features, leverages new risk prediction technology, and reflects more recent consumer credit behaviors. Our ultimate aim with FICO Score redevelopments is to ensure that FICO continues to be the most trusted name in credit risk scores by providing lenders with the most reliable and predictive score available in the market.

The FICO® Score was introduced to lenders over 30 years ago and has since become the best-known and most widely used credit score. But lender credit-granting requirements, data reporting practices, consumer demand for credit and consumer use of credit have all evolved since lenders first started using FICO Score in 1989. To help lenders make more informed credit-granting decisions, and to help ensure consumers get access to the credit they are qualified for, our analysts continually assess whether we should develop a new version of the FICO Score.

FICO just announced the launch of our FICO® Score 10 Suite. These latest and greatest models offer substantial improvement in the predictive power of the FICO Score. Improvements in the predictive power of the score means a more accurate ranking of consumers along the FICO Score spectrum, which in turn enables lenders to effectively manage the risk of their customer base.  For example, we estimate that using the more predictive FICO Score 10 model will enable credit card lenders to reduce their default rates by 13% relative to FICO® Score 8 at a cutoff of ~680.

The FICO® Score 10 Suite captures the shifts in consumer credit data that have occurred over the 5+ years since FICO Score 9 was developed and launched. Some of these shifts have been driven by updated data reporting practices (such as NCAP), and some have been driven by gradual changes in consumer credit behaviors, such as the increasing use of personal loans, especially for purposes of debt consolidation. 

One of the scores in FICO® Score 10, FICO Score 10 T, leverages additional variables in the model, including those from trended credit bureau data, which further refines the accuracy of risk assessment. Trended credit bureau data provides a view into the trajectory of certain credit data fields over time, such as account balance amounts reported over the prior 24 months.  

The end result of the updates incorporated in the FICO® Score 10 suite is more predictive FICO Scores that help lenders make better lending decisions and more confidently extend credit. Which in turn can lead to more borrowers qualifying for credit, at more competitive terms. This is a win-win-win: for consumers, for lenders, and for the economy.

Beyond our regular releases of new flagship FICO Score models, we continue to develop new, innovative models using alternative data to help consumers who fall outside the traditional credit reporting process and have difficulty getting access to credit. Innovations such as incorporating consumers’ utility payments in their FICO® Scores, allowing consumers to permission access to their checking, savings or money market accounts to demonstrate sound financial behavior (keeping positive balances, etc.), and incorporating new, FCRA-compliant data into FICO® Scores, help to responsibly expand access to credit for more Americans.