Improves loss forecasting and capital allocation decisions as Lenders can make better capital allocation decisions under different economic conditions by understanding the resulting impact on consumer credit risk
To help lenders predict future consumer risk under a variety of economic scenarios, FICOannounced the release of FICO® Score Economic Calibration Service 2.0.
This service forecasts how credit risk levels at each FICO Score range would change under different economic scenarios, and can help financial institutions stress-test their credit portfolios with loss forecasting models while coordinating capital allocation. The FICO Score Economic Calibration Service combines FICO’s patented methodology with Moody’s Analytics’ expanded and regionalized forecasts of economic data under the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) scenarios and Corelogic’s Home Price Index (HPI).
The Economic Calibration Service 2.0 provides a forward-looking estimate of consumer repayment risk across the full range of the FICO® Score, based on multiple economic scenarios. By using the service, lenders can understand how repayment risk for consumers would change under varied economic conditions. The newest release of the service captures the most recent consumer credit behavior following the economic downturn by leveraging credit data through April 2014.
The Economic Calibration Service incorporates Moody’s Analytics projections for more than 1,800 economic variables at the national and regional level, including labor market trends, interest rates, GDP, consumer leverage and house price indexes. FICO derives an empirical relationship between the default rates observed at different score ranges and historical changes in economic conditions, to project an expected probability of default ratio under those economic conditions.
Source: FICO Press Release