The Fair Isaacs Corporation which initiated the Fico credit score system is developing and selling a new range of analytical credit models to lenders. When lenders use these credit models it will give them a greater capacity to accurately predict the risk potential that both new and existing customers pose. Used in conjunction with the Fico score, the Fico Credit Capacity Index (CCI) will enable lenders to actively target the type of customers they want to attract and retain.
The Fico Credit Capacity Index has proven through testing to provide a different perspective on consumer risk and increases the lenders ability to identify customers who will be able to handle incremental future debt. It measures future debt risk and can be used by lenders to offer increased credit limits to current customers. Lenders will also be able to attract new customers who have the greatest likelihood of managing additional debt, by targeting them with special offers.
Credit card issuers have received lots of criticism in the last few years culminating in the credit reforms which were implemented in February 2010. Lenders can now use analytical models such as the Fico CCI to improve their image by promoting more responsible lending whilst lessening their own exposure to customers who are likely to be delinquent in their payments.
When lenders use the Fico CCI together with the Fico score they should be able to attract and retain better customers, and build up customer loyalty. This should then improve a lenders corporate image and increase their profitability.
Use of the CCI is unlikely to make any difference to consumers whose Fico credit score is already either very low of very high, but enables lenders to better target those in the mid range of Fico scores, from 700 upwards.
Testing of CCI has proven that it is far more effective as a predictor of risk than using income as a predictor, which has never been considered an effective measure of risk. Income holds too many variables which lenders don’t like: it is self reported; time consuming to check; has too many variables due to differences in location costs of living; and does not provide an accurate reflection of how income is used. Lenders that have tested the Fico CCI report much more precise results.
Consumers who are identified by lenders using the Fico Credit Capacity Index as being most able to manage further debt are likely to see a spate of offers directed their way, and will probably benefit from new credit card initiatives from lenders which hope to retain their loyalty.