Besides credit scores, lenders are now utilizing other unconventional criteria for issuing loans—magazine subscriptions and phone bills.
Companies like Goldman Sachs and Ally Financial are said to be experimenting with new metrics to approve loan applications. Considering the fact that generation today is more reliant on their phones, major banks are looking into possibilities of creating new criteria to measure the creditworthiness of customers.
According to Breitbart, new data from The Wall Street Journal suggest that other banks such as JPMorgan Chase, Citigroup, and American Express are also looking at the possibilities of incorporating new data. This move is integral to boost the volume of loans, especially personal loans.
In addition, these banks are also looking beyond simply the creditworthiness of loan applicants but their financial capacity to pay back.
New Indicators Of Financial Stability
Credit agencies such as TransUnion is reaching out to US lenders and banks to include ‘alternative data’ in the process of issuing loans. TransUnion is selling its new metrics that includes magazine subscriptions as an indicator that a person is financially stable.
Meanwhile, fintech firm ZestFinance suggests that people who spend more on groceries are considered the lower risk for lenders, compared to constant shoppers.
The Wall Street Journal states in its article that these ‘new data’ doesn’t always guarantee the creditworthiness of customers. Adding new metrics to loans can help but these won’t replace credit scores and reports. ‘Alternative metrics like a customer’s reliability in paying electric bills don’t translate into a likelihood they will repay their loans.’
Individuals with low credit scores have difficulty in acquiring loans because of the lack of credit history. In this regard, access to credit is not possible unless a person will build his or her credit rating through paying bills on time.