Hello, I’m sure that the Digital Venture blog has, more or less, familiarized you with FinTech. And today, I will introduce something which is also important called credit scoring.
Several decades ago, credit loans by financial institutions were easier, without complex criteria or scrutiny. However, such practice resulted in several financial crises, hence, the credit scoring system was established to facilitate credit approvals.
The credit scoring tool is used to analyze a person’s probability to repay debts. It can precisely categorize individuals with low creditworthiness so financial institutions can efficiently approve loans (that won’t become nonperforming loans).
Credit scoring functions like grades in exams. It verifies several factors such as punctual payment history, the amount of loan, type of loan, or other financial records. Different financial institutions may have different benchmarks, for instance, aside from the central credit scoring system, financial institutions may use sex, age, profession, and education as criteria. Therefore, young graduates or aging adults may experience higher difficulties in acquiring loans when compared to middle-aged men who are seen as having higher repaying potential.
Why is credit scoring important?
Unquestionably, it is more convenient to be a credible customer. We can recheck our credit history at the Credit Bureau, a center dedicated to information on loans and credit. The Credit Bureau stores information about good and bad debts, financial behavior as well as debt repayment history collected from partnered financial institutions (this is why banks know that we own several credit cards).
We can request for this data from some banks or the National Credit Bureau office located at the Saladeang BTS station, many may have walked passed their office. Then, once we know our credibility, we can assess the possibility of a successful loan approval. This is important because an unapproved loan is accumulated as a bad credit (unapproved loans decreases the score). Different financial institutions have different criteria for credit scoring, some mainly depend on the credit bureau’s information and some rely on their own methods.
FinTech and Credit Scoring
So, what is FinTech to credit scoring? New technologies have considerably influenced and redefine credit scoring. In the past, credit scores derived from our financial history, therefore, young adults hardly acquire loans. Luckily, today, other factors are incorporated.
Lenddo is a startup that uses social network footprints to define credit scores (high online presence means higher chances to repay debts). Also, the system processes internet usage behavior and geolocation to assess risks.
Aside from generating credit scores, FinTech also uses the good scores. They are used in Peer-to-Peer Lending wherein individuals who are not financial institutions can provide loans. The credit scores are used to suggest an approach with the least probability of bad debts. Just imagine, what other potential can credit scoring offer as AI and deep learning is getting smarter everyday.
What if our dinner date is counted as credit scores. Wouldn’t it be great if a date to a fancy restaurant once a month gives you have better credits? Nevertheless, one’s financial behavior still remains an important issue and, surely, having no debt is much better.
Please share your credit scoring calculating ideas and keep up with the latest FinTech updates at the Digital Venture blogs or share your ideas on my social media platforms. See you soon.
Images from lenddo.com