The COVID-19 pandemic has impacted our lives in many ways, and for some - it has impacted our credit scores.
If you've been late on any of your payments that are reported to the credit bureaus - payments like mortgage, car loans, student loans, personal loans, and credit cards - there's a very good chance your credit score has gone down. If your lender was not able to help you by delaying payments that are due, then your score most likely went down if you missed a payment. It might also have gone down if started using your available credit to pay your bills. Some people have resorted to using their credit cards to pay for utility bills that they normally pay with cash (or online bill pay from their checking account). When your credit card balances go up, your available credit is reduced which increases your utilization ratio - a key component of your credit score. When your utilization ratio goes up, your credit score goes down.
There's a lot to keep up with in these uncertain times when it comes to your finances. But that goes for your creditors and lenders too. The data that is normally reported to the credit bureaus may not be as complete as they are accustomed to, which means they have a less than ideal view of your current financial condition. They learned this the hard way during the Great Recession. If you need to apply for credit right now, they're probably a little nervous about trusting the credit scores they have using for the past decade or so. Scores from FICO and VantageScore are the most popular credit scores, but they are only as good as the underlying data that is provided by the credit bureaus.
FICO's Resilience Index
FICO released a new tool that might help out some lenders have a better understanding of your credit risk when you apply for a credit card or some other type of loan. The FICO Resilience Index is a new tool that helps a lender understand more about your current financial situation that goes beyond your normal credit score. It is not a credit score - it's an analytical tool that complements a traditional FICO Score to help the creditor have a more complete view of you. It's on a scale from 1-99 - lower is better. It's very unlikely the creditor would ever share this number with you or even let you know that they used it when assessing your credit application. Since it's not technically a credit score, the law does not require they disclose this information to you.
So how much should you really care about this?
No matter how good the tool is, creditors take time to adopt new tools and it can take years before a new tool is considered mainstream. That's what I would have said before now, but COVID is different. Risk managers live and die by precedents they can rely on. There are no precedents for the impact COVID has had on their businesses. After speaking with one of my contacts at FICO and a few risk managers at banks, I believe more creditors will use this tool sooner rather than later. They need all the help they can get to manage the risk in their credit portfolios, and tools like these can be helpful.