Machine learning FICO analytics can be used by lenders to match offers to risk and ability to pay
- FICO and Equifax have launched the FICO® Risk and Affordability Decision Suite, powered by Equifax®, which uses advanced predictive analytics to assess a consumer’s repayment risk as well as their ability to afford new credit
- The FICO Risk and Affordability Decision Suite is designed for lenders needing to make credit decisions that avoid overstressing consumers, while treating consumers fairly
- The suite works with the FICO® TRIAD® Customer Manager solution used to manage most UK card accounts
As the UK’s Financial Conduct Authority pursues measures to stop consumers becoming trapped by persistent debt, two industry leaders in credit risk management have joined forces to help lenders make better lending decisions. At the Money20/20 Europe conference in Amsterdam today, analytic software firm FICO and global information solutions leader Equifax have launched the FICO® Risk and Affordability Decision Suite, powered by Equifax®, which uses advanced predictive analytics to assess a consumer’s repayment risk as well as their ability to handle both existing and new credit.
The FICO Risk and Affordability Decision Suite is designed for lenders who need to decide which customers can handle additional or existing credit obligations. Unlike heuristic solutions based on income and its presumed link to affordability, this RegTech solution is based on thorough research into risk and affordability factors and their relationship to consumers’ payment patterns. While initially available for cards, the solution is designed to address credit and affordability risk across all credit portfolios.
“For lenders in the UK, basing credit decisions on credit risk alone is no longer enough,” said Steve Hadaway, general manager for FICO in Europe, the Middle East and Africa. “Lenders need to consider affordability along with creditworthiness, while ensuring they make fair, equitable decisions based on the most accurate data available. Through our partnership with Equifax, we’re giving lenders a systematic and sound way to lend responsibly.”
The Risk and Affordability Decision Suite is comprised of 46 “decision keys” — a combination of scores, indexes and carefully selected characteristics – that can be used in credit decisions to assess credit and affordability risk. FICO analysed more than 4,500 variables from Equifax data to determine which data and combinations of data would add value from an affordability risk perspective. The suite’s new models include:
- A new consumer-level FICO® Customer Management Score for risk assessment, developed using a combination of traditional methodologies and machine learning techniques
- A Balance Change Sensitivity Index that identifies which customers would have a significant change in Probability of Default (PD) if they had a sizeable change in their credit card balance
- An Indebtedness Score, developed on a consumer-level outcome definition to identify customers that are more likely to fall into arrears due to unsustainable credit commitments and higher debt-to-income levels
- An Affordability Index, which uses trended information on the level and consistency of the funding of the customer’s principal current account and overdraft utilisation to provide new insight into a customer’s cash-flow and affordability position.
Because the suite is designed for easy use in decision engines, lenders can start getting value from it swiftly, and with minimum reliance on internal IT departments. All of the solution’s decision keys are designed for ease of integration and deployment in FICO® TRIAD®Customer Manager, which is used to manage most UK card accounts. The information it delivers can be used in TRIAD decision strategies for credit line increases and decreases, and other account management decisions. Lenders can drive profitable growth by safely increasing the credit limits for cardholders who have the capacity to handle additional credit.
“The Consumer Credit sourcebook issued by the FCA includes detailed obligations for lenders to avoid over-burdening consumers with debt, and the FCA recently issued new rules with the same goal,” said Neil Cunningham, Partnerships Director at Equifax UK. “We have designed the Risk and Affordability Decision Suite to be used by lenders to help meet the evolving regulatory landscape. Lenders may have struggled in the past to embed affordability considerations into their decision systems — but now we’ve made that easy.”
Source: FICO Press Release