The New FICO Resilience Index Predicts Credit Resilience after a Crisis

The New FICO Resilience Index Predicts Credit Resilience after a Crisis

July 6, 2020         Written By Heaven Speirs

In response to the COVID-19 pandemic, the Fair Isaac Corporation released the FICO Resilience Index. This scoring model is designed to identify how likely a person’s credit is to be resilient to financial downturn. A low score indicates a person is “more likely to pay as agreed in the event of a recession,” while a high score projects credit struggle after a crisis. Resilience scores are independent of credit scores, meaning that a person with an excellent credit score may still have a high resilience score.

What Is the FICO Resilience Index?

The FICO Resilience Index was created to help lenders see “how resilient a person’s credit may be in the event of an economic downturn.” Traditional credit scoring models measure payment activity over time, but they do not accurately portray payment behavior after a national recession, pandemic, or other economic event. With the Resilience Index, lenders can see how likely a person is to continue making payments after a financial crisis.

How the FICO Resilience Index Works

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The Resilience Index scores each person’s credit resilience on a scale from 1-99. FICO analyzed “hundreds of thousands of anonymous credit profiles” from various timeframes, including before and after the Great Recession. They used this data to detect patterns in payment activities. Which consumers maintained their payments after the Recession and which ones defaulted? What correlations are there between each group?

Consumers with credit profiles similar to the resilient ones will have a lower resilience score. This does not necessarily mean that someone with good credit will have a low resilience score. The Resilience Index evaluates underlying factors in financial activity, not credit scores. Consider this a separate credit score, specifically designed for economic downturn.

Is This an Accurate Prediction of Your Credit Recovery?

The FICO Resilience Index could be a good starting point for lenders, but it is not a completely accurate prediction of resilience. Every economic crisis has its own set of circumstances. Consumers who were not resilient during the Great Recession may have learned from the experience and now have great resilience. The index is still within its ‘trial and error’ phase, but it could impact lending programs in the future.

To ensure that you remain on the good side of the Resilience Index, here are some quick credit tips:

  • Make at least your minimum payments each month, on time. If you can pay more while comfortably covering your other bills, do so. The ideal practice is to pay off your credit card balance completely each month to bypass interest charges.
  • Avoid new debt during economic downturn. This may be a great time to secure a low interest rate, but you may not be able to pay that debt with reduced income. Wait for your income to recover before taking on new financial responsibilities.
  • Keep up the good habits you already have. If you’re making on-time payments, buying only the necessities, and saving as much as possible, keep it up! You can reap the rewards once the economy starts to improve.
  • Use your credit card wisely. Pay for your everyday purchases using the card, and then pay off the transactions with money from your bank. If you get in the habit of only spending money you truly have, you can earn card rewards without accruing debt.
  • Maintain a monthly budget. Check out How to Set a Monthly Budget for a step-by-step guide.

The information contained within this article was accurate as of July 6, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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heaven

About Heaven Speirs

Heaven Speirs is a contributing writer for LowCards.com. She remains up-to-date with the latest developments in the credit card industry and the financial sector as a whole. Heaven has over 10 years of experience in online journalism, the bulk of which has been focused on personal finance. Heaven attended Oklahoma State University, where she discovered her talent for research and content creation. In her spare time, Heaven enjoys painting, playing poker, and spending time with her husband and three dogs.