Assess Your Ability to Cope With Economic Downturns With This New FICO Rating

As financial uncertainty persists amid the pandemic, banks have become morestrict about lending . According to thelatest report from the Federal Reserve Bank of St. Louis, 38.5% of US banks tightened lending standards in the second quarter of 2020. This reaction, which also occurred during the 2008 financial crisis , made it difficult to apply for loans or credit cards. But the new FICO scoring model could make it easier to get a loan in the future.

Last month, Fair Isaac Corporation, the company responsible for FICO credit ratings, unveiled the FICO Sustainability Index . Lenders can use this new scoring model – along with conventional FICO scores – to identify those who may be less risky to lend during times of economic uncertainty.

According to a recent report from CNBC , your FICO Sustainability Index may be less affected by a missed payment or late bill. Instead, the new scoring model could focus on factors that show greater resilience to economic downturns, such as low balance sheets and credit utilization.

FICO claims that higher resistance consumers can have the following qualities:

  • More credit management experience
  • Reducing balances with revolving credit (such as credit cards)
  • Fewer open accounts
  • Fewer annual loan requests

The FICO Sustainability Index scores consumers from 1 to 99. The lower your score, the more likely you are to make payments on time during difficult economic times. A score of 1 to 44 tells lenders that you may be “more resilient” when dealing with financial uncertainty, but a score of 70 to 99 indicates that you may be “highly sensitive” to changing conditions.

FICO hopes the new scoring model will have a big impact on the economy. By identifying more resilient consumers, the company hopes it can curb the excessive tightening of lending by banks during tough financial periods, which could slow the economic recovery.

You can read more about the FICO Sustainability Index, including how it differs from your regular FICO scores, here .


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