No credit score? No need to worry.
No credit score? No need to worry.
Anyone who has applied for a loan or credit card knows how important their credit score is in securing a loan –even if they don’t quite understand how it is calculated! Between your score and credit report, lenders have enough information to make a decision on whether to advance you more credit. Your credit worthiness is the ‘Open Sesame’ that unlocks the gates to the world of credit opportunities.
But what happens if you do not have a credit score that lenders can refer to? That is the story of millions of Indians who are ready to enter the credit marketplace but do not have a credit score due to lack of any prior formal credit activity. This includes newly employed workers who are just starting to earn enough to think of a first credit card or loan; older people who may not have chosen, or may not have needed, to apply for a loan in the past; or people from semi-rural areas who have not accessed the formal banking sector for credit.
So with no or very little credit history to go by, how do potential lenders evaluate these customers’ credit worthiness and decide whether or not to advance credit? How do customers, in turn, convince lenders of their eligibility?
Just the other day, Priya (name changed) approached us with a similar situation. She is a recent graduate who has been working with an IT company for the past year. She has no loans or credit cards and wants to take an auto loan but is unable to qualify for one because of her lack of previous credit history. At CreditMantri, we help customers like her overcome this problem by tapping new sources of credit information for mainstream lenders to use.
There are four questions lenders typically look at when assessing the credit worthiness of individuals with little or no formal credit history:
– Is the customer genuine (which can be verified through KYC documents);
– Is he/she reachable (can be verified through the contact information provided);
– Is the customer able to repay (this can be determined through salary and employment details and information on other assets and liabilities); and
– Is the customer willing to repay? This last question is perhaps the most difficult to answer since lenders have no data on the customer’s past repayment behaviour. They have to undertake time-consuming background checks on each customer and in the absence of data, might decide not to take the risk of lending at all. This could shut out millions of potentially eligible individuals from the credit system.
To tackle this last question we, at CreditMantri, are turning to a digital equivalent of ‘Open Sesame.’ This will enable customers like Priya to get a credit identity and, at the same time, allow lenders to get answers to the questions above.
How do we do this? Today, we can form a fairly accurate picture of a person’s credit worthiness by tracking their footprint on a multitude of digital sources. For instance, Priya’s phone can reveal GPS data that can establish her residence, or can be used to track SMS logs on her bank transactions. Her credit worthiness can be estimated by her activity on e-commerce and e–wallet sites. On social media, several LinkedIn connections from a single employer can be a strong indicator of employment data in the absence of a physical payslip.
Of course, this digital profiling is done with the consent and cooperation of the customers, who might otherwise find themselves excluded from the formal credit system. And on the other side, combining data from all these sources and arriving at credit conclusions enables lenders to make informed credit decisions.
It is very exciting to be part of this new credit frontier and the amazing possibilities of technology to fill in gaps in current methods of credit evaluation. These constantly evolving developments can only lead to happier results for both lenders and millions of credit-ready Indians – like Priya!