In its news release, FICO, which Fair Isaac calls itself, says the new system enhances the "predictive power" of credit score ratings, which can help reduce the number of defaults in lenders' portfolios. Comparing FICO Score 10 to FICO Score 9, the default rate on newly originated mortgages could fall by 17% and on new bank cards and new auto loans by 10% and 9%, respectively, according to FICO.
"These improvements in predictive power can help lenders safely avoid unexpected credit risk and better control default rates, while making more competitive credit offers to more consumers," says FICO. More than 90% of lenders' consumer credit decisions are based on the FICO score, according to the company.
Analyst Ted Rossman of CreditCards.com says, "Lenders will be drawn to the much lower default rates the FICO 10 Suite is promising."
Referring to the 24-month-plus lookback, Rossman explains: "FICO 10T will incorporate trended data, which basically means that they're going to try to smooth out the peaks and valleys. A temporary spending spike such as a vacation or holiday shopping won't hurt your credit score as much if you generally keep your credit utilization low. Ultimately, though, change comes slowly in credit monitoring. "
According to the latest data from the Federal Reserve Bank of New York, U.S. household debt has grown for 21 consecutive quarters through Sept. 30, 2019, to total a record $13.95 trillion. Mortgages accounted for 68% of the debt, student loans 11%, auto loans 9% and credit card loans 6%. The remaining 6% is split equally between revolving home equity loans and other loans.
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