As financial uncertainty persists amid the pandemic, banks have become more strict about lending. According to the latest report from the Federal Reserve Bank of St. Louis, 38.5% of U.S. banks have clamped down on lending standards in the second quarter of 2020.
This response, which also occurred during the 2008 financial crisis, has made it tougher to qualify for loans or credit cards. But a new FICO scoring model may make it easier to get access to credit in the future.
Last month, Fair Isaac Corporation, the company responsible for FICO credit scores, rolled out the FICO Resilience Index. Lenders may use this new scoring model—along with regular FICO scores—to identify those who may be less risky to lend to when the economy is experiencing instability.
According to a recent CNBC report, your FICO Resilience Index may be less impacted by a missed payment or account delinquency. Instead, the new scoring model may focus on factors that reveal a higher resistance to economic downturns—like low balances and credit utilization.
FICO says “higher-resistance” consumers may have these qualities:
More credit management experienceLower balances with revolving credit (like credit cards)Fewer open accountsFewer annual credit inquiriesThe FICO Resilience Index ranks consumers from 1 to 99. The lower your score, the more likely you are to stay on-time with payments during rough economic periods. A score of 1 to 44 tells lenders you may be “more resilient” when dealing with financial uncertainty—but a 70 to 99 score indicates you may be “very sensitive” to changing conditions.
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FICO hopes the new scoring model will have a big impact on the economy. By identifying more resilient consumers, the company hopes it may cut back on banks’ over-tightening of credit during rough financial patches—which can slow economic recovery.
You can learn more about the FICO Resilience Index—including how it differs from your regular FICO scores—here.
