What you need to know about the new FICO-Equifax credit risk score

By Marianne Curphey

When you apply for credit, lenders want a snapshot of how likely you are to pay them back -- and the credit agencies and credit scoring companies are constantly trying to come up with more sophisticated ways to help them do that.

The latest attempt is a new credit risk score being piloted by FICO and Equifax. It claims to show how a consumer will handle future credit. What's more, because it is more detailed than traditional credit scoring methods, it could give some consumers a better shot at getting credit.

Here's what you need to know about this new score.

What is the new score, and what does it measure?
The new score is the latest development to come out of the 2011 alliance between FICO and Equifax in the UK. It combines FICO's Credit Capacity Index technology (which is already being used in the United States) with Equifax's data on UK consumers. While most other credit scoring methods assess what credit commitments you have at present and what your credit history has been, this new solution attempts to predict your future behaviour. credit-score

Put simply, it works out how you would respond to having more credit -- and what would happen if you took on extra debt that you don't have at the moment.

"We look at the risk if you took on additional credit -- if you had more credit to pay off than you do now," says Darcy Sullivan, senior director of corporate marketing at FICO.

As with other credit scoring methods, the precise algorithms behind the score's calculations are a proprietary secret.

"The index uses data from thousands of credit files to predict how you might be able to handle extra credit, and we look at what position you might be in a year from now if you took on extra credit," Sullivan says.

Will the new score help or hurt my chances of getting credit?
FICO and Equifax say that UK card issuers could safely extend credit to 15% more consumers on average by using their solution. The score, the companies claim, could help lenders find consumers who may have been labelled with high-risk traditional credit scores, but who could actually be responsible users of new credit. That could be good news for consumers who have seen banks and card providers tighten their lending criteria as a result of the credit crunch.

"If this provides more in-depth analysis than the banks currently conduct for themselves, then it could be good news for consumers," says Andrew Hagger, a money commentator and founder of MoneyComms. "There are some excellent credit card deals out there, some at the top of best buy tables, but people are saying that they are unable to get them unless they have a squeaky-clean credit record."

The extra layer of analysis could be good news for consumers, Sullivan says, because it gives a more precise score and better data for the banks to work with.

"Better data tends to result in more 'yes' answers than 'no's,' " he says. "The more confident banks feel about their credit information, the more likely they are to lend. The less confident they feel, the more conservative they are likely to be."

Neil Munroe, director of external affairs and communications at Equifax, says the new index would enable lenders to offer new credit to people who are able to cope with it, but would protect people who already had "significant commitments" from taking on too much extra debt.

"The UK government has placed the responsibility firmly with lenders to determine consumer indebtedness and affordability before extending new credit," Munroe says.

Several UK lenders are currently piloting the service, Munroe says.  

How do I check my score?
Customers can't check how they rate on the new index, Sullivan says -- it's only for lenders, so there's no consumer version available.

"It is possible we might offer [a consumer version] in the future, but we have no plans at present," Sullivan says.

In the meantime, you can check your regular credit reports to see if they contain anything that could raise a lender's eyebrows. The credit agencies are required to furnish a copy for £2 on request. Instructions for credit report requests are on the credit agencies' websites:

Equifax: http://www.equifax.co.uk/Products/credit/statutory-report.html
Experian: http://experian.co.uk/consumer/statutory-report.html
Call Credit: http://www.callcredit.co.uk/stat-report-online/

See related: The 5 basic components of a credit score, Why landlords and employers want to see your credit file

Published: 9 October 2012