Risk Management – Interpolated FICO Scores on Consumer Loans

I have been retired for several year now, but back in the day, we determined the interest rates we charged on consumer loans by using tiered FICO scores. The FICO scores were tiered, so that for example, everyone between a score 620 and 674 got the same rate on their loan. The borrower with a score of 675 might get a loan at 9.35%, while the borrower with one point less (674) would pay 11.35%.

I am aware that the ranges have changed, but this spreadsheet can be adjusted for different ranges. The purpose is mainly to show the difference between using the tiered method, and interpolating a rate for each individual score. Obviously, one could just use more tiers, or to get the same results, assigning a different rate to each FICO score. The interpolated rates will almost always be higher than the tiered rates, except at the change in the tiered rates. The downside to the interpolated rates is that it might price you out of the market for some loans.

Also, this spreadsheet has not been used in a real world situation, so there can be errors I have not found.

The user starts by picking a loan type and if there are any discounts for direct deposits, automatic payments, etc.

Each yellow cell is a dropdown box.

Then the user enters a FICO score and the term. Again, both are dropdown boxes. The rate calculated is not the rate that falls between the FICO tier, but an interpolated rate.

The above information is sufficient to construct a tiered FICO table for that loan type.

The risk manager can compensate for parallel shifts in interest rates, by simply changing the rate on the 12-36 month New Auto rate.


The example above provides an interpolated rate of 12.13%. This compares to the 11.35% taken from the tiered table. The chart below shows difference between the tiered and interpolated rates for this loan type. The interpolating takes place between each change in the tiered rates.

Download: FICO

Don Pistulka

Retired Credit Union CFO - Finance
Background: over 40 years in investments, asset/Liability management, banking, securities trader.
Worked for: California Credit Union, WesCorp, CalFed S&L, Crocker Bank, Carroll McEntee, Federal Home Loan Bank Board (D.C.), Western Asset Management, Security Pacific National Bank.

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