There have been shifts in consumer behavior seen through credit scores, according to panelists at an ASF 2011 panel yesterday called Consumer Credit Metrics and Evaluation. The conference is being held this week in Orlando.
Panelists discussed how credit models and other metrics were modified to respond to changes in lending products and consumer credit behavior.
According to Joanne Gaskin, a director at FICO, one thing they have observed is that the higher score borrowers have further tightened up their credit during the financial crisis while those experiencing distress have remained in that state. “There has been movement toward the tails,” she said.
She also mentioned during her presentation that there have been variations in terms of geography. California and New York are the states with the higher score borrowers, while Florida and Nevada have the lower score distributions.
Gaskin added that there has been more pristine credit in the more recent vintages, which has followed the trend of decreasing risk in the higher score bands while there has been increasing risk in the lower score bands. “The industry is moving toward a higher FICO band,” she said. She said that this is also boosted by certain trends in the mortgage industry such as borrowers in the lowest score distribution not having the ability to have second liens.
She underscored the need for adjusting credit scores as economic conditions change, specifically including in the analysis shifts in GDP, house prices and inflation.
Meanwhile, Sarah Davies, senior vice president at VantageScore Solutions, said that recent credit behavior including newly opened loans is highly predictive of the consumers’ likelihood to maintain good debt management performance. Additionally, payment history and utilization continue to offer significant insight into consumer performance.
She mentioned that one component of modeling consumer behavior is through score comparative mechanisms. This is done through creating homogenous populations and building separate scorecards for key sub populations such as super-prime, near-prime and subprime while aligning these with credit marks.
Both FICO and VantageScore are going to come out with their analysis on strategic defaults, the timing for FICO might be sooner while VantageScore is expected to come out with its analysis at the end of the year.