How does the alternative credit scoring impact the lending industry?
The alternative credit scoring has arrived, and it is making some positive changes in the field of lending. The creditors and the borrowers are both benefitting from the alternative credit scoring solution. The alternative credit score is basically the data that is collected from your payment patterns, and it analyzes your payment behavior to gauge your credit worthiness. The alternative data is gaining popularity in the lending industry as it helps the lenders assess their borrowers better and the data also helps those who have a thin credit history, or, no credit history. Let’s learn more here. The significance of alternative credit scoring: The alternative credit data can be considered a boon for those who are first-time borrowers and who have no earlier credit history. The lack of credit history would mean that the first-time borrowers would be rejected, as the traditional credit risk assessment process would only rely on the credit history. This would mean that a large number of borrowers would be denied loans, and this would negatively affect the movement of financial inclusion in India. The alternative credit score solves this issue by collecting data from sources like bank account details, utility bill payments, phone bill payments, etc. This helps the borrowers access loans. The credit risk assessment gets smarter with alternative data. The traditional process depended on credit history and related factors. With that method the assessment process would not always be right. The alternative credit scoring on the other hand would rather
present a thorough analysis of the borrowers spending habit and it would make the assessment process be more accurate. The alternative credit data not only helps in boosting the movement of financial inclusion in India, but it also helps out the lenders expand their market reach. The lenders can finally reach out to those sections who have been denied a loan for not having the credit history before with the availability of alternative credit data. This would help them expand their business by catering to a large group of customers. The assessment process itself would be faster, and smatter and not to mention error-free. The processing of information is automated and hence is much more efficient and faster than the manual processing. The chances of error would be less too.
The above mentioned pointers do make it clear that the significance of alternative credit scoring is undeniable in the lending industry and it is benefitting both the borrowers and lenders.