FICO Resilience Index: A New Tool for More Precise Lending, Risk Management and Housing Policy

During the Great Recession, risk managers, lenders and investors dramatically curtailed lending due to the increased risk of default that came with the economic slowdown. While imprudent lending practices ceased appropriately, many creditworthy individuals were also denied credit due to lenders’ inability to distinguish consumer repayment performance under economic stress. While the FICO® Score continued to reliably rank risk across broad groups of consumers, lenders did not have the information necessary to identify those consumers, at a given credit Score level, who were more likely to weather a downturn. 

In 2020, Fair Isaac Corporation (FICO) released the FICO® Resilience Index (FRI) to address the need for finer differentiation of consumer risk. FRI estimates the relative likelihood of default by consumers within a particular FICO® Score band, given an economic stress event. While consumers at all credit levels have a higher risk of default in a downturn than in a time of economic growth, FRI identifies large numbers of consumers whose relative performance in a downturn is better than average within their FICO® Score cohort. These better performing consumers generally have longer experience with managing credit, lower balances, and fewer active accounts compared to the average within their cohort. 

FRI adds an additional dimension to credit risk analytics. It is used in conjunction with the FICO® Score, rather than replacing it. As such, FRI represents a significant addition to the toolkits used by risk managers, portfolio managers, loan servicers, originators and regulators. 

We examine eight use cases for FRI within the home mortgage industry. From capital planning to risk management to housing policy, the additional information provided by FRI helps the industry improve its analytics to create more finely targeted strategies, which in turn benefits lenders, consumers and the entire credit market by enabling more credit to continue to flow during periods of economic stress.