“The fact that Global FICO® scores work in varying environments worldwide—given regional differences in underlying credit bureau data, products, lender practices and consumer behavior—is a testament to the strength of the scores.”
—Brian Cooper, Fair Isaac
Global demand for risk assessment is on the rise, fueled by several economic trends—from mortgage subprime concerns to increasing regulatory vigilance. Industry research group Celent predicts global risk and compliance spending will cross the US$14 billion mark in 2008 (Managing Risk and Compliance: Responding to New Realities, 5 December 2007).
As demand grows, more and more financial services firms are turning to Fair Isaac’s Global FICO® credit bureau risk score. The score, which consistently shows strong performance across regions, is being increasingly adopted by credit bureaus, as well as national and multi-national lenders worldwide.
The Global FICO® score is designed for rapid implementation in any country with recognizable bureau data, regardless of whether it’s full-positive, partial-positive or negative-only data. As a result, the score has been widely deployed since its launch:
Since its launch, Global FICO® score has been widely adopted by lenders and credit bureaus worldwide. The score can be deployed in any country with robust credit bureau data—except in the US, Canada and South Africa, where well-established and successful Fair Isaac credit bureau scores are already available.
To gauge performance of the score, Fair Isaac performed validations in each of these regions. The research demonstrated that the Global FICO® score consistently delivers broad score distribution and strong rank-ordering of risk, despite regional issues and data constraints.
Impressive results in Ireland
Recently, Fair Isaac analyzed the Global FICO® score on data from the Irish Credit Bureau (ICB). The score was validated on a random sample of 500,000 accountholder records over a 12-month period.
Global FICO® scores showed a healthy distribution across the full score range, as shown in Figure 2. This broad distribution provides needed precision across the entire population. If a score is too compact—for example, a majority of the population falls into a single score band—it is difficult to set accurate cutoffs. This chart shows a healthy distribution across the Global FICO® score range at the Irish Credit Bureau, with a median score of 717. This allows for more refined decision making across a lender’s full operating range.
Several analytic measures showed that Global FICO® scores effectively separated future “bads” from future “goods” and consistently rank-ordered risk for the ICB population. In other words, as the score increased, the bad rate decreased, indicating that lower-scoring accounts represent higher risk.
“These results confirm the excellent predictive power of Global FICO® scores on the Irish consumer population and compare well to the scores’ performance in other markets,” explains Brian Cooper, senior director of Credit Bureaus and Scoring at Fair Isaac.
Boosting performance in Latin America
Would Global FICO® scores hold up as well in Latin America? To find out, Fair Isaac evaluated the score on data from a Latin American credit card issuer. It was validated on a sample of 300,000 accounts over a 12-month period.
Global FICO® scores validated well, despite regional data limitations and a large portion of consumers with prior derogatory items on file. As in Ireland, Global FICO® scores distributed across a broad range of scores for the applicant population and clearly rank-ordered portfolio risk. The scores separated the overall portfolio risk levels from the most risky group in the lowest score range to the least risky in the highest score range, as shown in Figure 3. A validation for a Latin American credit card issuer showed that the lower the Global FICO® score, the higher the bad rate. This demonstrates that higher scores correlate to better-performing consumers. The bad rate for the lowest-scoring population is more than four-times higher than the highest-scoring population.
Bringing an industry standard to Asia
The strong results seen in Ireland and Latin America were once again repeated in a validation performed for an Asian bank. Fair Isaac analyzed a dataset of 350,000 records over a 16-month period.
Global FICO® score performed well on both new and existing accounts, and across seven bank portfolios, including credit card, auto loan, personal loan and mortgage. Score distributions showed broad separation on all seven portfolios studied, including for credit cards—the bank’s largest portfolio.
Trade-off curves and other summary statistics indicated that the score effectively separated future good accounts from future bad accounts on both new and existing accounts. The Global FICO® score rank-ordered risk effectively, which would allow the bank to distinguish between good and very good risks, and between bad and very bad risks, in order to fine-tune lending strategies.
Region-specific risk assessment
By partnering with local lenders and credit bureaus, Fair Isaac can develop Global FICO® scores that consider regional predictive characteristics and other issues specific to each market. In addition, the scores leverage Fair Isaac’s 20+ years experience analyzing credit bureau data, and are designed to be consistently scaled across credit bureaus and national borders.
Global FICO® scores complement custom application and behavior models, and internal scores to improve decisions at all stages in the credit lifecycle. Lenders also use the scores to help meet Basel II and other regulatory compliance requirements.
Adds Cooper, “The fact that Global FICO® scores work in varying environments worldwide—given regional differences in underlying credit bureau data, products, lender practices and consumer behavior—is a testament to the strength of the scores.”