New FICO Scores Could Predict 5-15% More Auto Loan Delinquencies
MINNEAPOLIS — FICO recently announced the release of its newest scores, which are targeted specifically for the auto lending and bankcard industries.
Credit reporting agency TransUnion is making the scores available to lenders and issuers under the names FICO Risk Score, Classic Auto 08 and FICO Risk Score, Classic Bankcard 08.
The new products are industry-focused versions of the FICO 08 score, which launched earlier this year. Officials said the scores are designed to improve upon the predictive performance of FICO industry scores now in use, while providing auto lenders and card issuers with refined risk performance classification, enhanced segmentation capabilities, and protection against authorized-user account "piggybacking."
Additionally, the new scores support compliance with federal fair lending and credit reporting regulations.
The new FICO 08 score for auto loans is expected to provide a significant increase in predictive power compared to previous versions of the FICO scoring model, executives indicated.
Using the new score, auto lenders may be able to identify as many as 5 percent to 15 percent more potential delinquencies among consumers as they could with the previous FICO auto score, according to the company.
Use of the scores can help lenders make better informed decisions to as they seek to increase account bookings while reducing delinquencies and losses, FICO stated.
"Auto lenders and bankcard issuers today face a similar challenge — the need to grow their business with good customers while cutting their risks and losses," said Lisa Nelson, vice president of Global Scoring at FICO.
"That is why we took the initiative to make the FICO 08 score more precise and predictive than ever before, and now we've further refined it to address the specific needs of these two industries. Clients who have been using our auto and bankcard scores can convert to the new scores with only minimal implementation changes," she added.
The new FICO scoring model for bankcards is designed to give card issuers greater predictive capabilities in their origination and account management decisions.
In fact, product-validation testing found that the new scores could potentially increase issuers' delinquency prediction rates by 6 percent to 12 percent compared to the previous FICO bankcard score. In addition, the new score includes refinements to address non-prime consumers and those with thin credit histories.
To further ease the transition, the new FICO auto and bankcard scores retain the same scoring range, score reason codes, minimum scoring criteria and inquiry treatment as previous versions of the scores.