FICO Resilience Index

During times of economic uncertainty, people usually have trouble repaying their loans. It doesn’t matter what the reason for the economic stress is – what matters is that most everyone is going to feel it to a certain extent. In 2008, it was the great recession. In 2020, the coronavirus pandemic is the main cause of all the economic uncertainty.

To be better prepared for an occasion like the one we find ourselves in, creditors needed a new tool. That tool is the FICO resilience index.

What Is the FICO Resilience Index?

The FICO resilience index is a number that ranges from 1 to 99. It tells creditors how likely a person is to continue paying their bill as agreed during an economic downturn. In other words, the resilience index represents your capability to continue repaying your debt.

The resilience index score shows financial institutions if there’s any latent risk within certain groups of consumers. That allows them to keep lending money to borrowers with high resilience since they’re more likely to pay it off. At the same time, it lets them avoid riskier borrowers who are not as promising.

How the FICO Resilience Index Works

The lower your resilience index is, the more likely you are to keep up with repaying your loans. The resilience index score breaks down as follows:

1-44: Borrower is more resilient to changes in challenging economic conditions.
45-59: Borrower is moderately resilient to changes in challenging economic conditions.
60-69: Borrower is sensitive to changes in challenging economic conditions.
70-99: Borrower is very sensitive to changes in challenging economic conditions.

From that breakdown, we can conclude that consumers with an index between 1 and 60 are considered to be somewhat resilient to an economic downturn.

How Will Lenders Use the Index?

The most common use of the FICO resilience index is to determine if you should get a loan under unstable economic circumstances.

It’s not the only way lenders use the FICO resilience index, however. It also allows them to improve acquisition strategies to reduce credit risk and estimate loss allowances during times of economic stress.

The resilience index score helps lenders rank customers by sensitivity to economic stress. That, in turn, enables them to more precisely make account management decisions.

Finally, lenders can assess loan portfolio vulnerability thanks to ranking systems such as the resilience index.

FICO Resilience Index

What’s the Difference Between the FICO Resilience Index and the Original FICO Score?

FICO credit scores are there to provide lenders with an insight into your credit history. Most importantly, they show your payment history and how reliable you are when it comes to repaying debt.

Lenders get to see if you’re making timely payments, how many lines of credit you have, and the length of your credit history among other things. Under normal circumstances, FICO credit scores are simply there to testify to your quality as a borrower.

However, we’re not talking about normal circumstances in this case. During economic stress, some markers that would normally signal you’re a dependable and responsible borrower now make you look like a risky prospect. A good example would be the credit mix.

Usually, the credit mix makes up 10% of FICO credit scores The more varied your credit profile is, the better you look in the eyes of financial institutions. But that’s not the case with the resilience index. In crises, it’s much better to have a lower number of open and active credit accounts. There’s no arguing here – you come off as a very risky borrower if you have multiple active lines of credit during a financial downturn.

But there are some similarities with the regular credit score. Take credit age for example. The longer the credit age, the more experienced you appear to potential lenders. They’ll trust you have the necessary know-how to manage credit, even under the current circumstances.

Moreover, both your credit score and the resilience index will appreciate it if you keep the number of hard inquiries within the past 12 months to a minimum.

It goes without saying that credit utilization is also a crucial factor in determining whether you qualify as a risky borrower. By keeping a low balance (relative to your credit limit) on a revolving credit account, you signal that you’re a responsible debtor who won’t default on the loan.

Where Can You See Your FICO Resilience Index?

So, how can one earn this FICO resilience score?

There are two conditions you must meet in order to have the FICO index your resilience score. The first one is that you have at least one account that is no less than six months old. The other condition is that you have at least one account that was reported to a credit bureau in the past six months.

Quite recently, FICO has announced that it’s partnering with Equifax and Experian. The aim is to provide lenders with both your credit score and the resilience index whenever they perform a hard inquiry. However, consumers still cannot check their resilience scores.

Start Building Your Resilience to Economic Downturns Today

At White, Jacobs and Associates, we help our clients build resilience to uncertainty. You never know what could happen tomorrow. However, we’ll ensure you’re well-equipped and more resilient to whatever may come. Get in touch with our credit analyst today at no cost to hear what we can do for your FICO resilience index.

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