New FICO Score Targets Lending Risks

Equifax (EFX Quote), one of the three major credit-reporting agencies, today unveiled its BEACON Mortgage Score -- a scoring system based on a scoring model developed by FICO (FIC Quote) (previously Fair Isaac Corporation). Meanwhile, FICO's new scoring model, FICO 08, was recently adopted by TransUnion under the name FICO Risk Score, Classic 08. Both new scores promise better predictive ability to identify lending risks, especially in the the mortgage arena.

Lending risks are trending higher as credit scores appear to be dropping. The median score over the past few years has stayed around 720, but Barry Paperno, manager of consumer credit operations with FICO, says the median has been declining over the past year.

"We are seeing a higher amount of risk, as are lenders," says Paperno. "We look at an odds ratio of the number of good accounts to bad accounts at a particular range of scores, and that ratio is getting worse." ...