The FICO 10 Suite: Will It Make Borrowing More Difficult?
Triggered by very high consumer-debt levels, markets went into a tailspin in 2008. Back then, the debt figure was $13 trillion. Status Alert: the same figure is $14 trillion now. Fair to say, the lenders are getting a little fidgety. It is true that the demons of recession aren’t giving them nightmares yet but the lending fraternity knows that the phase of expansion can’t last eternally and that the USA might feel the pinch someday if generous (and fingers-crossed kind of) lending continues.
FICO Score 10 Suite
It is in this context that FICO’s latest effort called FICO Score 10 Suite shall be hailed. The new scoring model, above all else, offers lenders a precise picture of consumers’ debt-taking ability. While the credit scores currently available to the lenders offer a snapshot of a consumer’s credit history, it is by no means comprehensive. The FICO 10 Suite, contrarily, promises trended data and this alone makes it a worthy enterprise. Let’s see why trended data is pure gravy.
Explaining the benefits of trended data
Say, there are two customers and each has a credit score X. However, the first customer’s score has come down since last month whereas the second customer’s score has come up over the same time. Naturally, lenders will be more inclined to offer a loan to the second customer; but this only if they have all such information at their disposal. This is clearly not possible with snapshots. Now, compare the snapshot with trended data that furnishes a consumer’s historical payment data over the last 24 months.
The trended data records, but is not limited to, information on loan amounts, outstanding balances, scheduled payments, payments made and dates of payment. This way, lenders can gather in a blink if a consumer has the propensity to pay only the minimum due amount or does she work at keeping the outstanding low. Besides, what is the ratio between her credit limit and availed credit? Many more such things! It is not hard to fathom then that trended data can help lenders create a responsible lending environment.
Comprehensive data at lenders’ disposal
To reiterate, already there is an apprehension regarding the levels at which the debt climate can be allowed to prevail. One indicator is the averaging-down sign-up bonus amount. Lenders are clearly playing conservatively. And though it’s not a key concern yet, lenders will whisper in your ears that they are wary of possible defaults. Comprehensive data at their disposal at least make them feel they had the controllable parameters within their control.
By assessing how close to the pressure point consumers are, and how much debt they can accumulate before caving in under pressure, lenders can create a lending strategy that perfectly fits their profile.
And lest we confuse
Just a thing: while Experian Boost or Ultra FICO aims to assimilate new kinds of payment histories in order to increase credit scores, the aim of FICO 10T is to bring to the lenders the exact creditworthiness of consumers (and in doing so, decrease the possibility of future defaults). At an hour when the debt-levels are already strained, it looks like a noble enterprise.
So what makes it a good deal for the borrowers?
End of the day, it is the consumers on whom the onus of debt payment lies. Blown in the slipstream of their circumstances, credit propensity, and eye-catching deals, the borrowers sometimes punch above their weight while using a credit facility. Because the “minimum due” payment keeps them rolling, they remain oblivious to the debt discomfort they move towards. Something like FICO 10T can reflect the true picture to the borrowers (a picture nobody likes to see but everyone should). The fact that the score is pretty exhaustive makes course-correction easier for borrowers.
In the final analysis, it can be asserted that while the on-the-face benefits are lined up towards the lenders, the actual benefit is still pressed to the side of the borrowers.