o New product update from FICO promises to help CUs better manage collections.
o Ongoing recession effectively breaking long-term FICO score patterns.
o A group of consumers with artificially low credit scores may continue into the future.
The Fair Isaac Corp. released a revamped edition of its debt collection software that the data company said will be easier and less expensive to deploy and use in a year when credit scores nationally are undergoing their most significant changes in decades.
FICO is most widely recognized as the leading analytic company providing consumer credit scores that lenders can use when making loans and setting interest rates. But the company also provides analytic tools that credit unions and other lenders can use throughout the lending cycle-including collections and recovery.
"We are here in the start of the lending process and even in the pre-loan process and we are there at the back end as well," explained Morgan Nagle, a product manager for FICO with responsibility for the debt management product.
Nagle explained that FICO has helped lenders better manage and predict outcomes from their collections and recovery efforts for more than 20 years, ever since the company purchased a firm in the United Kingdom that developed a program that eventually became FICO's Debt Manager. The new version FICO rolled out last week is Debt Manager 8.0.
"FICO Debt Manager 8.0 is much more than a product upgrade," said David Lightfoot, FICO vice president of decision management products. "We rebuilt it completely to address the new reality that lenders face in trying to collect what they are owed, avoid charge-offs and reduce attrition. Lenders can expect to see real productivity gains as well as strategic advantage from deploying this new product."
Nagle explained that the new package's chief innovation is something he called "adaptive control," a way the software can help a lender test different approaches to collections and recovery and recognize which works better.
Nagle acknowledged that the product offers new functionality at a time when FICO scores generally are undergoing some of their greatest changes in years.
For example, data released last week from CoreLogic, a economic data analysis and research firm, showed that homeowners with the highest incomes-those who would have presumably the highest credit scores-were actually seven times more likely to walk away from their mortgage commitments, particularly on second homes.
"Two or three years ago, no-one would have ever predicted this sort of behavior," Nagle acknowledged, noting that FICO had revealed the significant shift in consumer attitudes in January. "For years, it was axiomatic that consumers would pay their mortgage first," Nagle said. "But now, many consumers pay their cards first. A lot of people depend on those cards," he added.
FICO also recently reported that 43.4 million American consumers now have FICO scores below 600, pushing them effectively into a range where it becomes steadily more difficult and more expensive to get credit.
According to the report, FICO based its analysis on the data it collected by the end of April and found that an additional 2.4 million more Americans had seen their credit scores slide to below 600 in the last two years.
This is significantly more volatile than FICO has generally seen and future scores may not improve much. Currently, 26 million Americans are unemployed or under employed and millions more may go through foreclosure, which alone takes 150 points off a credit score. There may be a group of people coming out of the economic downturn with the sorts of credit scores that could effectively prevent them from taking a robust part in the recovery, the company suggested.