FICO Resilience Index

What Is the FICO Resilience Index?

The FICO Resilience Index is a credit scoring model that’s designed to help lenders better understand how consumers respond to economic stress. This index—when used alongside the FICO credit score—can aid lenders when making credit decisions by allowing them to more accurately gauge financial risk and how resilient consumers are to changing economic conditions.

How the FICO Resilience Index Works

The FICO Resilience Index is an analytic tool that’s designed to capture an accurate picture of a consumer’s personal risk level during a recession or an economic downturn. It’s not meant to be a replacement for traditional credit scoring. Instead, it gives lenders deeper insight into credit risk during specific economic cycles to help them better manage lending decision-making.

The resilience index runs on a scale from 1 to 99, with a lower score being better. That’s the reverse of FICO credit score ranges, where the higher a consumer’s score is, the better. Having a resilience index score in the range of 1 to 44 suggests that a consumer’s household is more financially resilient during widespread uncertainty, while a score of 70 or higher suggests that a consumer is more sensitive to the effects of a downturn.

In terms of what the resilience index measures, it takes into account many of the same factors that are used to generate FICO credit scores. These include:

• Payment history
• Amounts owed
• Length of credit history
• Credit mix
• New credit

The resilience index also considers the number of accounts that consumers have open and consumers’ overall experience with using credit. In measuring those factors, the index can help lenders gauge how likely someone is to run into trouble paying their bills if the economy takes a turn for the worse.

Purpose of the FICO Resilience Index

The creation of the FICO Resilience Index is timely, as Americans are increasingly under financial stress. In creating the index, one of the goals is to help consumers who may be adversely affected by traditional credit scoring models to continue to have access to credit in recessionary environments.

For example, an individual may have a credit score of 650 because of a past credit mistake, such as a late payment. However, if they have a good job with stable income and a sizable emergency fund cushion, then they may be able to weather an economic downturn with minimal negative financial impacts.

All the same, because they have a score that would be rated “fair” instead of “good” or “very good,” they may have a harder time qualifying for loans during a recession, when banks and other financial institutions tend to be more cautious about lending money. That could make it more difficult for that individual to buy a car or get a mortgage and do so at favorable rates, even if they have the financial means to pay back those obligations in the near and long terms.

Advantages and Disadvantages of the FICO Resilience Index

The FICO Resilience Index would, in theory, help to minimize biases in lending that can happen when lenders only look at credit scores. That sounds good, but it’s important to consider whom this new index could actually help—and whether it may do more harm than good for some consumers, specifically members of the Black, indigenous, and people of color (BIPOC) community. Kevin Haney, founder of Growing Family Benefits and a former Experian executive, says the new index isn’t designed to target specific demographic groups.

“Credit scores do not consider any data relating to skin color, race, or ethnic background,” Haney says. “Instead, they make predictions based on the previous behavior of each individual.”

Regardless, studies have shown that BIPOC individuals tend to skew lower in credit scoring models compared with White individuals. This potentially can be attributed to lower levels of income and assets, translating to a reduced ability to repay debts, resulting in lower credit scores. This could make the index another measurement that could end up being used against these communities.

“The FICO Resilience Index is more likely to widen the credit score gap for BIPOC than it is to level the playing field,” Haney says. “Steady employment and stockpiles of cash and investment securities help people weather economic storms.”

Alan Hansford, senior vice president and chief risk officer at Amplify Credit Union, has a different perspective. He says the resilience index is more likely to be harmful to consumers in general who have a poor history of credit and financial management.

“If your finances look like a high-wire act without the net, you have a low FICO credit score, and your resilience turns out to be poor, that could really sting,” Hansford says.

With regard to the diversity aspect of credit scoring, it’s possible that the index could have a strong and positive effect for BIPOC individuals who take a conservative approach to financial management, Hansford says. “Lenders want to lend to low-risk borrowers, and the new FICO Resilience Index can shine a light on those who earned a lower interest rate,” he adds.

In other words, anyone who lacks sufficient emergency savings or job stability may find themselves locked out of borrowing opportunities or facing higher interest rates if they receive a higher FICO Resilience Index score. The opposite may be true, however, for people who have savings and consistent income, despite their actual FICO credit scores.

How to Access FICO Resilience Index Scores

At this time, the FICO Resilience Index is being made available to lenders through a pilot program. FICO has indicated that at some point in the future, consumers would be able to check their index scores. In the meantime, consumers can still check their credit reports from each of the three major credit bureaus—Equifax, Experian, and TransUnion—for free at the government-sanctioned website AnnualCreditReport.com. Experian also allows consumers to check their FICO credit scores for free online.