FICO score: Revamping credit risk assessment

Data-based credit risk assessment helps lenders make decisions that are faster, more accurate and more equitable. One of the most widely used tools in this space is the FICO score, which has long served as a standard in credit scoring.

The FICO score 10 T uses trended data to evaluate a person’s credit behavior over more than two years. This historical view enhances predictive accuracy and helps lenders make more informed decisions, according to Julie May (pictured, left), vice president and general manager for B2B Scores at Fair Isaac Corp., known as FICO.

FICO’s Julie May talks with theCUBE about how the FICO score continues to shape financial access through data-driven credit insights.

“The FICO score is unique to every individual in terms of the algorithm, but it looks at every individual separately by making an assessment of their ability and willingness to pay back debt,” May said. “We’re finding that our customers are interested in hearing about our latest and greatest score, FICO 10 T, the T in FICO 10 T stands for trended data. We’ve had incredible adoption in mortgage by the non-conforming mortgage lenders of 10 T. We have approximately 30 lenders who are already using it, over 300 billion in originations are being scored with 10 T, and 1.5 trillion of servicing volume is being scored and reviewed by 10 T.” 

May and Ethan Dornhelm (right), vice president of scores and predictive analytics at FICO, spoke with theCUBE’s Rob Strechay at FICO World, during an exclusive broadcast on theCUBE, SiliconANGLE Media’s livestreaming studio. They explored how the FICO score continues to shape financial access through data-driven credit insights. (* Disclosure below.)

How the FICO score is changing to reflect real-world behavior

The FICO score is evolving to incorporate new types of credit data, including Buy Now, Pay Later services. With more data analytics options available, these additions are intended to improve fairness, efficiency and overall decision-making, according to May.

“At the end of the day, lenders are always looking for more information to make better decisions so that they can provide credit to their customers,” she said. “UltraFICO, that’s using consumer permission and [demand deposit accounts] data to actually provide a different lens of borrower credit readiness. We’ll be making and adding a proprietary treatment to FICO models to address Buy Now, Pay Later information that will be furnished through the credit bureaus. Why this is important is [that] we’ve seen incredible growth of utilization of Buy Now, Pay Later as a lending vehicle, we see consumers using it.”

The FICO score plays a central role in the credit landscape as a standardized measure of consumer creditworthiness. A strong score can unlock better financial opportunities and more favorable borrowing terms, Dornhelm pointed out.

“I would say one of the ways we like to look at consumer credit risk trajectory is with the average national FICO score,” he said. “It makes sense to use that as a metric, it is the common language of credit risk in the US, 90% of top lenders use it. What we saw through the pandemic … we actually saw a significant uptick in the average score, significant. This all allowed consumers to save at unprecedented rates, pay down debt, really help their balance sheets and in turn help their FICO score. What we’ve seen since is really what I would call treading water.”

Here’s the complete video interview, part of SiliconANGLE’s and theCUBE’s coverage of FICO World: 

(* Disclosure: TheCUBE is a paid media partner for FICO World. Neither FICO, the sponsor of theCUBE’s event coverage, nor other sponsors have editorial control over content on theCUBE or SiliconANGLE.)

Photo: SiliconANGLE