Transcript Title of Presentation

FICO® Score 9: Product Showcase
The Most Current and Predictive FICO® Score
Frederic Huynh
Senior Principal Scientist, Analytic Development—Scores
FICO
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Forward-Looking Statements
Product roadmaps and similar marketing materials
should be considered forward looking and
subject to future change at FICO’s discretion.
Future functionality, features or enhancements as shown are
FICO’s current projections of the product direction,
but are not specific commitments or obligations.
2
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Outperforms
All Prior FICO® Score Versions Across
All Industries and Lifecycles.
3
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Benefits Summary
► Grow
Be Current
portfolios safely, make better decisions with more accurate Scores
► More
predictive score based on current consumer behavior and evolving
credit landscape
► Newer
Be Compliant
► Comply
4
© 2014 Fair Isaac Corporation. Confidential.
more easily and confidently with existing US regulations
► Enhanced
► Gain
Be Adaptive
data set and more appropriate treatment of select populations
support for regulatory compliance/model governance
without the pain
► Backward
► Limited
compatibility eases adoption
IT and operational impacts: same minimum score criteria, reason
codes, odds-to-score relationship, and score range
Media and Market Reaction to FICO® Score 9
“The new FICO 9 model, according to the Federal Reserve, will provide best-inclass predictive power across all major credit product lines…”
“Lenders believe the new standards will have a positive impact on the economy…”
“Medical debt will carry less weight in FICO’s new credit-score model”
The Washington Post
“…we welcome steps by industry to adjust how it weighs medical debt…”
Moira Vahey, CFPB Spokeswoman
“Changes Could Lead to More Bank Lending, Easier Credit for Some Consumers”
The Wall Street Journal
“This move will ultimately make a real difference in the lives of millions of
Americans…”
Steve Brown, President,
National Association of Realtors
5
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Informed by Changing Landscape
Numerous changes have occurred since FICO® Score 8 was developed:
Change
► Mortgage
23%
16%
6
© 2014 Fair Isaac Corporation. Confidential.
crisis and the ensuing great recession
► Fewer
new accounts are being opened
► Decrease in consumers with new account openings
► Consumers
are seeking credit less often
► Decrease in consumers with recent inquiries
FICO® Score 9 Informed by Changing Landscape
► Recent
development sample revealed 31% drop in the proportion of origination
bads relative to all bads
► Innovative
approach required to address these dramatic changes
FICO® Score 8 Development Sample (2006–2008)
FICO® Score 9 Development Sample (2011–2013)
Composition of Bads: Existing Accounts vs. New Accounts
Composition of Bads: Existing Accounts vs. New Accounts
Existing
New
88.1%
© 2014 Fair Isaac Corporation. Confidential.
New
8.2%
11.9%
7
Existing
91.8%
Multi-Faceted Modeling (MFM) Methodology
► Facet
1: Exhaustive, cross-industry data driven characteristic selection
► Identify
►
out-of-model predictors stronger for key industry use cases
Collection characteristics are predictive in predicting originations risk
► Assess
the weaknesses of a general model for key industry use cases at the
component level
► Facet
2: Incorporate Multiple Goals Scorecard Technology
► Primary
performance variable remains general risk (originations and account
management)
► Secondary performance variable focuses on originations risk
► Use of Multiple Goals Scorecard Technology consistently strengthened originations
validation results on out of time sample
►
8
KS lift observed up to 1.0 on originations validations
© 2014 Fair Isaac Corporation. Confidential.
Multi-Faceted Modeling (MFM) Methodology
Facet
1:
Exhaustive, cross-industry data
driven characteristic selection
Facet
2:
Incorporate Multiple Goals
Scorecard Technology
Identify out-of-model predictors
stronger for key industry use cases
Primary performance variable remains
general risk (originations and account
management)
Collection characteristics are
predictive of originations risk
Secondary performance variable
focuses on originations risk
Assess the weaknesses of a general
model for key industry use cases at
the component level
Multiple Goals Scorecard Technology
consistently strengthened originations
validation results on out of time sample
KS lift observed up to 1.0 on originations validations
9
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Vs. Earlier Versions of the
FICO® Score
► Comparison
10
Charts
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Is More Powerful and Outperforms
KS Statistic
11
FICO® Score 9
FICO® Score 8
Prior FICO® Score
All Industries, New + Existing Accounts
62.1
60.3
59.2
All Industries New Accounts
55.8
54.4
52.8
All Industries Existing Accounts
62.8
61.0
59.9
Bankcard New Accounts
59.4
57.9
56.3
Bankcard Existing Accounts
63.3
60.8
59.4
Auto New Accounts
56.4
55.2
54.8
Mortgage New Accounts
59.9
56.6
55.0
Mortgage Existing Accounts
64.7
63.4
62.7
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Predicts Future Risk Better
Swap Odds Analysis, All Industries, All Accounts
FICO® Score 8
Score
Cutoff
% Above
% Below
580
87.2
620
Swap Set
Swap Set Odds*
12.8
% Swapped
Above
1.9
% Swapped
Below
1.9
Swapped
Above
5.1
Swapped
Below
3.3
79.2
20.8
2.6
1.5
8.9
5.5
660
70.0
30.0
3.3
1.6
16.5
9.3
700
59.7
40.3
3.6
2.5
34.5
17.1
740
47.5
52.5
4.1
3.1
78.4
42.2
Across the score spectrum, better performing records are being swapped above,
and poorer performing records are being swapped below.
*Bad = 90+DPD
12
© 2014 Fair Isaac Corporation. Confidential.
Slight Shift to Higher Score Ranges
Interval Score Distribution: All Consumers—National Population
FICO® Score 9
FICO® Score 8
FICO® Score 5
25
Percent
20
15
10
5
0
< 500 500 - 520 - 540 - 560 - 580 - 600 - 620 - 640 - 660 - 680 - 700 - 720 - 740 - 760 - 780 - 800 - 820 - 840+
519 539 559 579 599 619 639 659 679 699 719 739 759 779 799 819 839
Score
13
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 More Effective Assessing Thin File Risk
Interval Score Distribution: Thin File Records (# Trade Lines ≤ 3)
FICO® Score 9
FICO® Score 8
FICO® Score 5
12
10
Percent
8
6
4
2
0
< 500 500 - 520 - 540 - 560 - 580 - 600 - 620 - 640 - 660 - 680 - 700 - 720 - 740 - 760 - 780 - 800 - 820 - 840+
519 539 559 579 599 619 639 659 679 699 719 739 759 779 799 819 839
14
© 2014 Fair Isaac Corporation. Confidential.
FICO® Score 9 Stronger Prediction in Thin Files
Trade Off Curve Comparison: All Industries—Thin Files (# Trade Lines ≤ 3)
% 90+/Any Derog Accounts
FICO® Score 9
FICO® Score 8
FICO® Score 5
100
90
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
60
% Total Accounts
15
© 2014 Fair Isaac Corporation. Confidential.
70
80
90
100
Revised Treatment of Collection Agency Accounts
► FICO®
Score 9 enhancements to the treatment of collection agency accounts:
1. All paid collection agency accounts will now be excluded from the score calculation
2. Unpaid medical collection agency accounts will be assessed differently from unpaid
non-medical collection agency accounts
Note: These specific FICO® Score 9 enhancements do not apply to 1st party collection accounts.
16
© 2014 Fair Isaac Corporation. Confidential.
Revised Treatment of Collection Agency Accounts
FICO® Score 9 Enhancements to the Treatment of Collection Agency Accounts
Unpaid Medical Collections
Paid Collections
Unpaid medical collection agency
accounts will be assessed
differently from unpaid non-medical
collection agency accounts
All paid collection agency accounts
will now be excluded from the
score calculation
Note: These specific FICO® Score 9 enhancements do not apply to 1st party collection accounts.
17
© 2014 Fair Isaac Corporation. Confidential.
Risk Prediction Improved By Ignoring Paid Collections
All Industries: New and Existing Accounts (Segment: files whose only derog item is
a medical collection)
Baseline
Test1 (paid collections bypassed)
Test2 (medical collections bypassed)
100
Cum Pct Bads
90
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
Cum Pct Total
18
© 2014 Fair Isaac Corporation. Confidential.
60
70
80
90
100
Differential Risk Between Medical and Non-Medical Collections
Bad Rate Comparison: Files With Unpaid Medical Collections Vs.
Unpaid Non-Medical Collections
Files with Unpaid
Paid Medical
Collections
Medical
Collections
Benchmark: Files with No Derogatory References
Files with Unpaid Non-Medical Collections
32%
28%
Bad Rate
24%
20%
16%
12%
8%
4%
0%
0-4
5-6
7-9
10-11
12-14
15-17
18-20
21-23
24-35
Months Since Most Recent Collection
19
© 2014 Fair Isaac Corporation. Confidential.
36-47
48-59
60+
FICO® Score 9 Has More to Offer
Prior FICO® Score
FICO® Score 8
FICO® Score 9
7/1998–7/2000
4/2006–4/2008
10/2011–10/2013
Development Time Period—TransUnion
10/1998–10/2000
4/2005–4/2007
10/2011–10/2013
Development Time Period—Experian
10/2000–10/2002
10/2005–10/2007
10/2011–10/2013



Improved Scorecard Segmentation


Improved Authorized User Treatment


Improved Thin File Treatment


Development Time Period—Equifax
Predictive Value
Improved Collections Treatment
20
© 2014 Fair Isaac Corporation. Confidential.

FICO® Score: What’s Next?
► FICO®
Score 9
► Serves
► FICO®
as the core for the FICO® Score solutions
Score Suite
► Industry
► Active
Scores
Research and Development
► Current
pilots based on CRA and Alternative Data
► Intended to score more consumers, responsibly
21
© 2014 Fair Isaac Corporation. Confidential.
Access to FICO® Score 9 (Base Score)
Base Model
General Availability
Equifax
October 2014
TransUnion
November 2014
Experian
Early 2015
Industry Scores software delivery to CRAs targeted for
first quarter calendar year 2015. Working with CRAs on
implementation and targeted available dates.
22
© 2014 Fair Isaac Corporation. Confidential.
The Most Current and Predictive FICO® Score
FICO® Score 9
► Be
Current:
► Grow
with more accurate scores based on today’s
consumer credit behavior
► Be
Compliant:
► The
most current, fully documented FICO® Score ever
► Be Adaptive:
► Backward
compatibility eases adoption and impact
to operations
23
© 2014 Fair Isaac Corporation. Confidential.
24
Thank You!
Frederic Huynh
[email protected]
(415) 492-5323
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Learn More at FICO World
Related Sessions
►The FICO® Score: 25 Years of Democratizing Access to Credit
►Fact vs Fiction: Demystifying Credit Score Features
Products in Solution Center
►Unveiling
FICO® Score 9—Your Credit Score for the New Normal
Experts at FICO World
►Frederic Huynh
►Julie Wooding
White Papers Online
►To Score or Not to Score? #70
Blogs
►www.fico.com/blog
25
© 2014 Fair Isaac Corporation. Confidential.
Please rate this session online!
Frederic Huynh
[email protected]
26
© 2014 Fair Isaac Corporation. Confidential.