Credit Risk Without A Credit Score: How Banks Access It

Outlook Money

How Banks Use Alternative Data

Without a credit score, banks have started using alternative data, which provides information about a person's financial behaviour.

Bank Bank

Alternative Data

The alternative data includes, rent payments, mobile bill payments, electricity usage, wallet bills, UPI payments, and online shopping. Such a data helps banks to get a credit signal about the individual.

Alternative Data

Technology's Role In Interpreting Risk

Technology like AI and machine learning (ML) algorithms can analyse large sets of data volumes of digital behaviour for patterns that are related to creditworthiness.

credit risk

How Banks Use Technology

Banks feed the software with historical repayment data and the system then learn to estimate the probability of repayment from new applicants. 

Credit Profiling

Some banks also consider a borrower's educational level, job status, or profession and try to understand the risk profile. Good risk scores are offered by the salaried employees.

Credit Details

Financial Access Through New Channels

This use of alternative data is beneficial for individuals like gig workers, freelancers, street vendors and small business owners, as they can now borrow money based on their online behaviour rather than documentation or collateral.

Financial Planning

Challenges

There are a lot of people who pay bills in cash and also don't shop online, form them the digital scores can not be calculated adequately.

Challenges

Digital Gap

There are a lot of individuals who lack access to smartphones and continuous internet connection or are unfamiliar with online interfaces. In such cases, it becomes difficult to get the personal information. 

Digital Gap

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