Equifax and FICO announced last week that tests of a new score for measuring consumer credit capacity showed the system can identify groups of consumers who could handle more credit, which could encourage lending.
The FICO Credit Capacity Index—build on Equifax’s Risk Navigator 4—was tested on two large credit portfolios in the U.K. The CCI was applied to approximately 275,000 consumer credit applications, and an examination of account performance one year later showed that CCI combined with RN rank-ordered borrowers.
For borrowers who applied for a personal loan or current account, the ratio of regular payers to those with credit problems one year later was six times higher for borrowers with high CCI scores than for those with low scores. The ratio was 15 times higher for high-scoring credit card applicants.
“Being able to identify consumers who have high CCI scores could provide an opportunity for lenders to say ‘yes’ to more applicants while maintaining their current risk levels,” Keri Kramers-Dove, the manager of global scores for FICO, said. “Our tests showed that lenders could approve five percent more of the applicant population while maintaining their overall risk level.”
The new solution is designed to help lenders determine a consumer’s ability to manage additional credit and to assist issuers in growing customer portfolios without extending credit increases to consumers who cannot handle additional debt.
“Risk management today is focused on stable, profitable growth for the banking industry,” Hayley Kershaw, the managing director of FICO for Europe, the Middle East and Africa, said. “Through our alliance with Equifax and our continued innovation in predictive analytics, we are helping U.K. lenders satisfy the growing demand for credit, which in turn fuels this country’s economic recovery and health.”