Equifax (NYSE: EFX), a global leader in information solutions, and Fico (NYSE:FIC), the leading provider of analytics and decision management technology, are giving lenders and credit grantors easy access to a unique analytic tool to better assess consumer credit risk.
Developed by FICO and leveraging Equifax credit data, the Credit Capacity IndexTM is the first forward-looking risk management tool that rank-orders consumers based on their ability to take on future debt. Available through Equifax, Credit Capacity Index enables lenders to strengthen their account acquisition and account management strategies while minimizing exposure to potential losses while not burdening consumers with too much debt.
"The credit crisis has highlighted the importance for lenders of acquiring deeper, forward-looking insights into consumer credit risk," said Robert Duque-Ribeiro, vice president and general manager of Scoring for FICO. "Credit Capacity Index offers lenders an unprecedented, extra dimension when used in combination with FICO scores. We believe it will be particularly valuable to lenders for improving control over loss exposure and reserves and increasing profitability during today's uncertain economic times. Furthermore, the ability to understand a consumer's capacity to handle debt will be critical when managing growth as the economy improves."
FICO optimized Credit Capacity Index to be used in tandem with BEACON® credit scores, which rank order consumers' repayment risk based on current credit profile information. Both scores are built on Equifax credit data and can be leveraged by lenders as part of other risk management strategies when making credit decisions. Used together, Credit Capacity Index and BEACON can help lenders differentiate consumers who present the same repayment risk on their current obligations but vary in their capacity to assume new debt or incremental credit balances.
Credit Capacity Index can provide value at different points across the credit account life cycle. For example, it can help credit card issuers avoid future credit defaults by predicting which cardholders can handle incremental debt if extended a higher credit limit. Credit Capacity Index also may help mortgage lenders and the secondary mortgage market by helping them to better predict which borrowers with adjustable rate home loans can handle higher payments once their loan rates reset.
"Enabling lenders to understand credit capacity gives them a vital perspective on consumer credit risk - an edge they have not had before," said Dann Adams, president, US Information Solutions, Equifax. "By combining Credit Capacity Index with the new BEACON 09 score and Equifax's income and employment data, lenders gain deeper file transparency that will help them sustain responsible lending practices."
"As the global recession and financial crisis slowly abate, a key for economic growth will be the continued use of credit by consumers," said Dana Wiklund, research director of Risk Management for Financial Insights. "To address that need and mitigate their risks, financial service providers are looking for new approaches in several areas including their assessment of consumer creditworthiness. Tools like Credit Capacity Index demonstrate that the industry is investing in and making commitments to new technology to augment ongoing credit decisions and refine risk assessment."