NextGen Score
The NextGen score was developed by FICO® the same company behind the most widely used credit rating, FICO® Score. The aim of this new score was to increase the number of accounts/loans a creditor could issue while at the same time decreasing the amount of delinquent payments. Released in 2001 the NextGen rating has now been scraped/rebranded as the mortgage market did not respond positively to it.
At the time according to this FICO® research [PDF Warning] profits could be increased by roughly $9 per new account scored, with banks/lenders able to increase approval rates by ~5%. The assumptions used in this study were; $175 revenue per “good” account over 18 months and a $3,500 loss for each charge-off or bankrupt account.
| FICO® Scores | FICO® Nextgen Scores | % change | |
|---|---|---|---|
| % Above Cut Off | 68.0% | 71% | 4.4% |
| % of Approved | % of Approved | ||
| Goods | 87.5% | 87.5% | 0% |
| Bads (90+ days or worse) | 2.7% | 2.4% | -11.1% |
| Charge-off or worse | 2.2% | 1.9% | -13.6% |
| Bankrupts | 1.5% | 1.3% | -13.3% |
Above table is taken directly from FICO® NextGen Risk Scores [PDF Warning]
Other reported bonuses from switching to FICO NextGen Scores included;
Better Overall Performance – 20-25% improvement over the classic FICO scores in the number of future “bad” accounts scoring below a given cutoff.
Subprime Market – among a subprime population – credit files with prior serious delinquencies or charge-off’s a lender using the FICO NextGen risk scores in lieu of the classic risk scores could increase the number of approved loans by 6%-10%, while still lowering loses
Heavy Credit Users – Among the lowest scoring 10% of consumers with revolving bankcard balances of $3,00 or more, the FICO NextGen risk scorers identified 23% more future bad players than the classic scores.
Multiple Portfolio Types – By switching from classic FICO scores to FICO NextGen risk scores, a decrease in bad rates of up to 20% is possible for lenders in various industries, including bankcard, auto, mortgage and retail personal finance.