Equifax and FICO team up on new credit scoring tools

By UK CreditCards.com

Credit report firm Equifax and predictive analytics provider FICO have announced a new agreement under which they will develop new credit scoring analytics for the UK market.

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The tools should help credit card providers to decide whether or not to approve an application, potentially reducing the losses that are made when a cardholder is unable to repay their debts.

Analytics will assess consumers' capacity to handle extra credit
The first of Equifax and FICO's new analytics will assess individual consumers' capacity to cope with extra credit -- an important factor when determining whether or not to approve an application for a new credit card or extend an existing cardholder's credit limit. Another of the new tools will show how a potential customer's risk would change under a range of different economic conditions, reflecting the fact that external factors can affect a person's ability to make repayments.

"A core goal of the Equifax/FICO alliance is to enable lenders to build greater understanding of risk into their customer acquisition, retention and management strategies," said Shawn Holtzclaw, managing director of Equifax UK. "The new scores will be a breakthrough for the UK, facilitating responsible lending and helping lenders to sustain profitable growth."

Mike Gordon, FICO's vice-president and managing director for Europe, the Middle East and Africa, claimed that the scoring innovations "are breaking new ground in the UK".

"The sluggish economic recovery has put additional pressure on British consumers and their debt obligations," observed Mr Gordon. "We are working with Equifax to develop scoring solutions that enable healthy lending growth that benefits consumers, lenders and the economy."

Lenders 'excited' by new concept
Equifax and FICO's forthcoming analytics have been welcomed by industry members, including HSBC. Mark Thundercliffe, the bank's chief credit officer in the UK, said he was "excited" about this new approach to credit scores. Mr Thundercliffe said the new scores would help to drive high credit quality standards, while enabling HSBC to grow its business in compliance with industry regulations. He added that the bank was "committed" to testing the new concepts and helping to develop powerful risk scoring solutions.

Consumers set to benefit too
Improvements to the way in which lenders assess applicants will also be beneficial for consumers, as they will help to encourage responsible borrowing. Another likely benefit is that, as lenders become more able to spot risky consumers, they may be inclined to make better offers to those who are deemed less of a risk. This, coupled with the fact that lenders now only have to offer their best advertised rates to 51% of successful borrowers instead of the previous 66% thanks to the recent Consumer Credit Directive, means that people who compare credit cards may be able to look forward to better rates in the future, as long as they have a good credit record.

See related: More consumers are checking their credit; Study: Many Brits lack key knowledge of credit scores

Published: 29 September 2011