The credit card issuers are lowering the credit limits and canceling the credit card accounts. This is all because of the FICO Resilience Index. But what is it and why should you pay attention to the FICO Resilience Index.
The FICO Resilience Index is an analytical tool that will help the lenders decide whether a person is creditworthy or not, with the help of a numeric score given to each person. This index has been bought in the market by the most popular data analytics company, FICO.
To have a better understanding of this index, we will start with knowing the term resilience and after that, we will know about how lenders use the new index and who benefits from the FICO Resilience Index?
In order to get the full information about the FICO Resilience Index, you should go through the whole article.
Everything To Know About the FICO Resilience Index
Basically, this index works on a scale that ranges from 1 to 99 where the lower number is better.
What is Resilience?
Resilience is the ability to recover from difficulties. Similarly, in FICO Resilience, it is referred to as economic resilience. There are several factors that suggest the bounce-back of a consumer from economic trouble. If a person has the experience of managing credits, then there are chances that he will rapidly recover from financial adversity.
Apart from it, if a consumer is able to maintain a low credit utilization ratio, generates a lower no of credit inquiries, or just owns few active accounts, he/she will definitely be able to bounce back from the economic troubles.
Although you may have a lot of accounts with a good credit score, in case of a pandemic, it can become miserable for credit.
How Does the FICO Resilience Index Work?
As already said that the FICO Resilience Index is an analytical tool, it has been specially designed to make accurate information of a consumer’s personal risk level in the time of the pandemic.
This index works on a scale ranging from 1 to 99 where a lower score is much better. FICO Resilience Index is simply opposite to the FICO Credit Score where the higher consumer score is better.
A consumer will be considered as more financially resilient if he has a score range of 1 to 44. A score of 45-49 is considered as moderately resilient, 60-69 as sensitive, and 70-79 as very sensitive.
How Will Lenders Use the New Index?
The new FICO Resilience Index is helping lenders to know about the risks of new credit applicants. Due to this index, the lenders are having a better understanding of a consumer’s credit risk so that they should know which consumer has the ability to become more financially resilient during the time of pandemic or economic issues.
For instance, a credit card company uses the FICO Resilience Index with the FICO score so that they can create an adjusted FICO score. After that, a lender will understand by looking at your score range and will find whether you are financially resilient or not.
Who Benefits from FICO Resilience Index?
This index can only make the predictions of each individual’s previous behavior, but it can’t consider the data related to the person’s background which includes cast, color, etc. So, the major advantage of this index will be taken by the credit card companies as well as the lenders. Now, they will decide which person they should lend them money to.
If you have applied for a good credit card with a low index number but a fair to good FICO score which is 660 to 690, then there are chances that FICO Resilience Index will help you in getting approved.
This was everything about the new FICO Resilience Index. If we tell everything about this Index in short, then it is a new type of credit score that is helping the lenders to understand the consumer’s credit risk.
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What is the FICO resilience index?
It is basically a score given to each person so that creditors will understand whether a person will continue to pay its bills during economic trouble or not.
What is a credit score in economics?
A credit score in economics is a number that ranges between 300-850 and it tells about the creditworthiness of a consumer based on his/her credit history.