When it comes to financial matters, one of the numbers that can impact an individual’s financial life is their credit score. Whether they are buying a house or asking for a loan, their credit score determines how likely they are to accomplish their financial goals. Traditional credit scoring is quite rigid and unforgiving towards people with weak credit, considering how it focuses on a person’s credit history. Thankfully, banks and other financial institutions have veered towards alternative credit scoring solutions which are far more inclusive than traditional credit scoring.
In this article, learn more about alternative data credit scoring and its advantages.
What is alternative credit scoring?
If you have loan applicants who are fresh graduates, chances are their credit history won’t be as strong as people who have been in the workforce for five years or more. In which case, it would be quite difficult for them to apply for loans–especially for institutions that use traditional credit scoring. With alternative credit scoring solutions, people who don’t have a strong credit history can still be evaluated based on a different criteria.
Alternative credit scoring utilizes data from different sources such as utility bill payments, telecom data, rental and lease payments, and bank account details to help banks calculate credit risk assessment. Rather than base a person’s score on traditional lines of credit such as their payment history, current debts, credit utilization ratio, number of open accounts, and length of credit history, borrowers are assessed based on alternative credit data.
What is alternative credit data?
Alternative credit data refers to the criteria used in alternative credit scoring solutions. With this data, a lender can get data on the economic habits and lifestyles of individuals which they can use to evaluate and determine an individual’s alternative credit score. Again, this is different from traditional credit scoring which essentially looks at an individual’s bank account and credit history, among others.
Here are some of the things that can be considered as alternative credit data:
Monthly Bills
Monthly bills give evaluators an idea of how well an applicant or borrower can keep paying on a regular basis. Bills like utilities, cable, and mobile postpaid bills are good indicators of whether an individual can pay regularly and on time.
Shopping History
Consumer behavior is also a commonly used indicator of whether an individual will be getting a positive credit score. If they have shopping applications and transactions on their mobile device, for instance, this can help an evaluator see whether a person has enough financial resources to purchase certain products. This can also signal to banks and financial institutions whether an individual is responsible enough when making purchases and payments or if they have concerning spending habits.
Property Records
If an individual has multiple properties, lenders can see this as an indicator of them having financial stability. If they have been making investments or payments for a property, then this could potentially add to their good alternative credit score.
Telco Data
Mobile phones are a veritable source of financial information because of how necessary it is today. Our mobile phones contain a lot of information. Telco data such as data usage, voice usage, text usage, SIM age, and top-up patterns are great indicators of creditworthiness when analyzed by banks and financial institutions.
Alternative Credit Scoring Solutions
Mobile data is a great source of data that can be used to evaluate creditworthiness. After all, almost everyone has a mobile phone today and almost everyone lives their daily lives through their phones. It comes as no surprise that telco credit scoring is one of the leading alternative credit scoring solutions.
With telco credit scoring, lenders can get information about the individual’s telecommunication usage that can indicate economic activity and lifestyle. Things such as texting usage, data usage, voice usage, top-up patterns, and SIM age can affect their telco credit scores.
Aside from these, telco data credit scoring can also help banks and other financial institutions detect fraud and possible identity thefts. Since telecommunication companies keep track of geo-locations–more specifically, the area in which an individual does transactions with their respective mobile devices–companies will have an easier time cross-checking a submitted application.
Utilizing alternative credit scoring
The biggest advantage of utilizing alternative credit scoring is that more people can qualify for loans. While traditional credit focuses on a borrower’s bank accounts, alternative credit scoring takes into account a more holistic view of an individual’s economic activity, lifestyle, and even connections. Given the more holistic approach, companies that consider alternative credit scores may have a better understanding of whether an individual would be a credit risk or not.
As most companies are approaching the calculation of credit scores through a more thorough process, it becomes necessary to look beyond just the traditional scoring system. Alternative credit scoring provides both borrowers and lenders with a clearer overview of things and provides individuals with more financial chances.
Leverage alternative data credit in the Philippines
With a vast number of Filipinos possessing mobile phones, one of the easiest ways to build up credit is to leverage telco data scoring. While traditional credit scoring still has merit, the fact that alternative credit scoring takes into account consumer habits gives you a good indication of how an individual will act in the future. Telco credit scoring amplifies this by giving banks and lenders data from an individual’s phone usage.
Dip your feet into alternative credit scoring solutions with FinScore. Our company utilizes advanced analytics and telco data in our credit scoring models to help banks, lending companies, and other financial institutions increase their approval rates by providing innovative and beneficial solutions for the companies and their clients.
To know more about telco credit scoring or our digital scoring tools, don’t hesitate to contact us now!
