Like we discussed in the previous post, there are a couple of inherent limitations in traditional credit-scoring like:
– Heavy dependence on banks’ data
– Untimely reporting
– Dependence on past data
– Scoring for the “Credit Invisibles”
– Considering the credit aspect only
that come into play when assigning a credit-score using traditional data.
The good news is that these limitations no more are an obstacle for credit-scoring since we are now tapping the non-traditional data sources too. These non-traditional sources empower lenders to be well-informed and make better lending decisions for the first-time-borrowers and new-to-credit segments.
Use of alternate data helps overcome these limitations because-
1. Credible- Data received from various sources is matched against each other and verified to make informed decisions. The exposure of risk is reduced since multiple data points are matched. This builds credibility for alternate data.
2. Realtime- Alternate data doesn’t need as much time to process as traditional data. The turnaround time is really less. Also, a lot of alternate data is tapped in realtime and thus, is relevant and never obsolete.
3. Considers finance holistically- Traditional data considers only the credit history of the borrower. However, alternate data sources don’t just consider the credit history but also takes into account his expenses, income, savings and utilities. This gives the lender, a bird’s eye view of the borrower’s finances.
4. Independent & Contextual Data- Traditional data scoring depends heavily on bank’s data and credit repayments. However, the data collected in this case, is not dependent on the banks. Thus, this data is contextual in nature. It is complementary and in addition to the traditional data available about the borrower.
So instead of outright rejecting a “credit invisible” customer, now, financial institutions consider them as a big part of the market. They are able to assess the creditworthiness of this new segment better by overcoming the inadequacies in traditional data sources. They can also reach out to right customers at the right time with contextual marketing and communications.
How about you trying to see how alternate data can help you lend better?
Simply request for a LIVE demo of our products here. 🙂