What Are The Benefits Of Alternative Credit Scoring

What is the use of credit scores? Well, individuals need credit scores for meeting their desires, like buying an electronic product or funding one’s child’s education. For every individual, this need for credit varies. Alternative scoring of credit helps in data enrichment from different sources rather than completely relying on credit bureaus. This further helps the individuals assess the credit risk.

The process is beneficial for the underbanked as well. People belonging to vulnerable groups are secluded from being given loans and credit scoring due to the lack of knowledge to comply rightfully with the laws of credit scoring.But, with alternative credit scoring, a reliable assessment can be transferred to these unbanked people based on sources.

How has Alternative credit scoring been helpful?

Through the system of digital transactions, a good amount of credit can be collected. This, as a result, improves the financial condition of this community of people. Some of the advantages of alternative credit scoring include:

Inclusion of credit access: Through the process of alternative credit scoring, all groups of people can enter the credit ecosystem, straight from the bottom of the pyramid to the top. This, as a result, creates opportunities for both the borrowers and the lenders.

Causes growth and development: By gaining access to different methods of credit scoring, one can improve his/her standard of living. Thanks to the data enrichment, all information regarding the behaviour on purchases, due bill payments and other banking transactions can be obtained and loans can be refinanced at reduced interest rates, if required.

Developing a new set of customers: This process not only helps to grow real-time credit scores but also develops a new customer scale by lending money to those who are in need. The lenders get a reduction in the cost of loan origination and also minimise the common errors that could have occurred in the manual process.

Improves the underwriting process: The process of alternative credit scoring speeds up the lending process. It helps in quick decision-making, compared to the mainstream credit reports that have only historical information from formal sources. The scoring also takes into consideration the social interactions done by the applicant for understanding the ability to borrow and the willingness to pay it back.

Faster use of digitalization: After the introduction of COVID-19, financial services and banks were forced to start up digitalization or stop functioning. Thus, it indirectly boosted the method of creating real-time credit scores and paved the way for digital lending in India. Also, the process of alternative scoring is more accurate compared to traditional credit scoring.

The method of alternative credit scoring is not only used for generating more credit but also for passing out information about the credit decision process towards the lenders. It joins the gap created between gaining credit and fulfilling desires. This can also be a way of turning the underbanked community into the banked community and improving their standard of living which indirectly lifts the poverty scale.

How To Improve Your Credit Score? Here Are Some Tips!

The credit score is one of the crucial factors that ensures your loan applications gets the approved status. The credit score is basically measured on a scale of 300-900, the higher your score is the better for you as you do not have to worry about the credit risk management process. However, due to several reasons the credit score gets affected and it often plunges below the desired level. Therefore, it is mandatory for you to boost your credit score in a way that you can pass the credit risk assessment test. So, here are the tips that might help you get a better credit score.

Tips to improve your credit score:

• The first step you should take is to pay all your dues. If you have monthly installments, then you should pay the installments without missing out on any. If there is a delay or, if you miss one payment then your credit score would get affected in no time. You should therefore start by making the payments to make sure that you are not lagging behind, and you are establishing your credibility as a borrower. This would no doubt ensure that your credit score goes up, as the lenders would be updating the report. This would give your real time credit score a boost.
• You should also consider asking for a higher credit limit. The credit utilization ratio has an impact on the credit score you have, and that is the reason you should ask for a higher limit. If you get approved then your credit score would get a boost. This way your balance might remain the same, but there being a higher credit limit your credit utilization ratio would get a boost and your credit score will go up. However, alternative credit scoring can be great for those who do not have traditional credit history.
• Sometimes a credit report might contain errors, which will affect your credit score in a negative way. Therefore, what you should do is to check your credit report for errors, if you detect any then you should dispute that error immediately, one the lender checks and fixes it, it would be reported and that would help your credit score. Being aware of these details can help you be prepared for the credit risk management process.
• If you have old credit lines then you should not close those lines, if you do that, your credit score would get impacted. Therefore, it is best to have access to your old credit lines, this would definitely put you under favorable light and would give your credit history a boost and that in turn would boost your credit score. First-time borrowers do not have any credit history; therefore, they must take advantage of the alternative credit scoring solution and access real time credit score.

Keep these above-mentioned tips in mind if you are dealing with a low credit score. Keep track of your credit score and take steps to ensure that you are clearing the credit risk management process.

The Digital Lending In India is a Growing Trend: Here Are The Reasons Why

Now our life has become digital and we are relying heavily on the digital measures available to make our lives easier. You can certainly expect the digital measures to transform your life in a way that is highly convenient for us. The digital lending in India is getting highly popular and there are several reasons why the lenders and borrowers are selecting the digital lending solutions and why they are appreciating this medium. According to the numbers the digital lending platforms are growing in popularity and more and more borrowers are turning to digital lending. Let’s learn here why this platform is so popular.

Reasons why the digital lending in India is so popular:

• The new age customers are much more tech savvy and they are doing everything online now including shopping, banking. They do not want to turn to the traditional lending solutions because the traditional lending solutions are time consuming, and they have to undergo so many hassles to submit loan application, get the kyc done, and also wait for the assessment process to take place. However, with the digital lending being there the credit risk management process takes up lesser time to get completed.
• The digital lending platforms prefer using the alternative credit scoring solution that would make the lending process hassle-free. The traditional lending platforms rely on the traditional credit history and data which the first-time applicants might not have. This would mean that their application would be rejected. But when it comes to digital lending in India the alternative data makes the process simpler and it offers a smarter view of the borrower’s financial habits and financial status. Therefore,  the digital lending platforms are gaining popularity.
• The digital lending in India is getting popular because of another reason which is, it allows the lenders to reach out to the people who reside in remote towns and villages and where there is no branch available. But with digital lending being available anyone can access these lending platforms without having to worry about geographical barriers. On the other hand the lenders to can extend their territory as they can access more customers digitally and get the credit risk management process done digitally as well.
• The digital lending process is much smoother, secure thanks to the alternative credit scoring solution and it absolutely ideal for the lenders and the borrowers. Things are bound to get smarter with the digital lending, as there is less time involved, it is cost-effective, and it is also more convenient for all.

The above mentioned reasons do show why the digital lending is popular and why the lenders and borrowers are turning to this platform. In the near future the digital lending will become the preferred method of lending.  

Why Alternative Credit Scoring is Rising in Popularity?

The traditional credit data is what the lenders resort to whenever they have to process the loan applications from the applicants. The problem with traditional credit data is that it has limitations that are hard to overcome for those borrowers who do not have any traditional credit history. Especially for the first-time borrowers and people with no documentation, would find it hard to be approved for the loans they are hoping to get. However, with the advent of the alternative credit scoring this issue is finally solved. The alternative credit scoring is getting popular because it offers a host of benefits. Let’s learn more here.

Reasons why alternative credit scoring is so popular?

• The alternative data offers the biggest benefits to people who are borrowing for the first time and has no traditional credit data. With traditional lending process they will never get approved for a loan, this would be a hindrance for them. But when one has access to the alternative data they can easily apply for loans and get approved. The data enrichment system allows the banks and other organizations to access the accurate alternate data that can help them assess these people more accurately and offer them the loans they need.
• The alternative data offers a better perspective, this can be better than the traditional credit data. The reason being that the traditional credit data gets the information from some traditional sources, and these sources offer a partial view of the customer’s financial status. On the other hand the alternative data can offer you the best solutions as it draws financial information from multiple sources, and this is data captured in real-time. This offers a wholesome view and offers a real time credit score.
• The banks and the businesses can make quicker decisions because there is alternative credit data available. The automated process and  alternative credit scoring makes it easier for them to access a customer profile and analyze their financial behaviors and pattern and this will finally help the businesses to assess the applications faster and thereby speed up the lending process and expand the customer base.  
• The traditional credit data does not provide an accurate view of the customers, and thereby one cannot get the profiling right. However, with the data enrichment system in place now accessing accurate credit data is possible and therefore, the banks and the lending organizations can get the profiling right; This would help in easing the decision making process.
• One of the biggest reasons to turn to alternative scoring is that it helps in boosting the credit risk assessment process and helps the organizations get real time credit score. This enables the banks to be sure about the customers they are dealing with and this makes the process more secure.

The above mentioned benefits of the alternative credit scoring make this system so popular among the people. Take advantage of the alternative scoring solution to make your lending more secure and faster.

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Importance of Alternative Data in Loan Underwriting

loan underwriting

When people apply for traditional secured loans, banks and lending institutions check the credit score and other financial details of the loan applicant. It puts those Indians at a disadvantage who have do not have a proper credit history or even a banks account. As most of these people are from remote or rural areas, it prevents them from an opportunity to get a loan and get financial help. Thankfully, banks and financial institutions have started implementing alternative data for their loan underwriting process. Let us see how alternative data has changed the underwriting process.

Alternative Data for Loan Underwriting

Alternative data is the data generated by a user on online platforms and the internet. The financial and lending institutions will ask permission to access the alternative data of the loan applicant for the loan underwriting process. Here are some examples:

• Bill payments: Details regarding the payment of any type of bills like mobile recharge, insurance policy, rental charge, loan EMI, utility bills, etc.
• Social media interaction: The data regarding your presence and activity on different social media platforms.
• Location data: Your location history is also taken into account under alternative data. Your travel routes, places you visited, and transportation options may be collected.
• Online shopping transactions: Your activity on e-commerce platforms, shopping history, wish lists, most searched shopping items, etc.

These are some of the alternative data points that financial institutions collect for the loan underwriting process. This data was analyzed to determine the loan applicant’s behavioral patterns, financial habits, and other preferences that can significantly affect their credit underwriting process.

Effectiveness of Alternative Data

Banks and lending institutions need various tools like artificial intelligence algorithms and machine earning models if they plan to use alternative data for the credit underwriting process of loan applicants. As this field of application is still new, thus there can be a certain element of error in the results. The lack of a historical dataset makes it harder to ascertain the results of the credit risk assessment process using alternative data with a hundred percent guarantee.

Still, it is an innovative way to determine the creditworthiness of a loan applicant as it uses new criteria that are more readily available to the user. The availability of cheaper smartphones and the internet has allowed many people to go online and explore the World Wide Web. The increase in connectivity has led to the generation of more alternative data about loan applicants. Here are some of the benefits of using alternative data for the underwriting process.

• This process can be done remotely. People living in even rural and far-flung areas can apply for this through online channels.
• The process is mostly automated and asks for the basic details of the loan applicant. They only need to provide photos of their government identity documents along with the alternative data. The credit underwriting process can then begin.
• The use of alternative data makes the underwriting process faster and more accurate.

From these points, we can see that the use of alternative data allows more people to have access to lending and financial facilities. It also makes the customer base of banks and lending institutions more diverse.

Alternative Data: Different data-sets used under this category

Although it is still a new method that is being explored and made better, many people think of alternative data as the future requirement of the finance industry. As more people are connecting themselves to the internet every day, the number of alternative data providers is increasing at a rapid rate. Many fintech companies and digital lenders use this alternative data for financial and investment strategies.

Alternative data refers to non-traditional data sets that financial companies use. Some examples of alternative data include credit card transactions, mobile internet activity, geolocation, satellite imagery, social media sentiment, product reviews, weather, application usage, etc. Let us discuss some of them in detail.

Social media activity

Social media platforms have allowed people from across the world to connect despite their boundaries. The largest platforms like TikTok, Facebook, YouTube, Twitch, Instagram, and many more have become the space where marketers use social listening tools to monitor brand perception online. Similarly, investment firms, digital lenders, and fin-tech companies consider social media data to determine the mood of the masses. The collective emotions of people on these social media platforms spill over to the financial market in varying degrees. This can further affect financial policies and the credit underwriting process in banks.

Internet traffic and mobile application usage

With the number of smartphone users skyrocketing, it has become the main source for people to access the internet every day. Thus, tracking web traffic can tell fin-tech companies and digital lenders a lot about the online activity of smartphone users. Using analytics on mobile application services also provides crucial data regarding a person’s online activity. Some of these details are like is a new mobile software application attracting new users or becoming unpopular? Are websites of a particular product category suddenly receiving a lot of traffic? Such questions provide important answers to these kinds of traffic-related data questions that are important to investors and traders.

Geolocation data

Tracking people’s travel and movements also provides valuable information to the fin-tech companies. While it may seem like a breach of privacy in general, many services require you to provide access to your current location so that they can be used. For example, when you are doing online payments or moving around while using Google Maps, you need to switch on your GPS location. This GPS data provided by cellular and telecom companies is a crucial part of alternative data and helps fin-tech groups to predict various consumer movement trends. It also helps them to determine the key location areas where there is huge traffic. Such data become important, especially when there is a large disruption like the COVID pandemic. Its spillover effects can also be seen in the current financial market which further affects financial policies and credit underwriting process in banks.

These are some of the main categories of data sets that are acquired when you allow fin-tech companies to access your alternative data. You should learn about them in detail before accepting to share any of your private information.

Check out these processes which can speed up the loan underwriting process

Financial institutions have started implementing various web technologies in the previous decade. This has resulted in the financial sector becoming more swift, efficient, and inclusive. From the loan application, loan underwriting, and even the loan approval process, each step has become advanced with the help of various innovative solutions. Here are some processes that have made a major positive impact on the lending market.

Inclusion of digital documents and alternative data in the loan underwriting

In the past, a loan applicant needed to carry a lot of paper documents for identity verification and the underwriting process. If the applicant failed to produce any of the necessary documents, they were not considered for the loan approval. Even if they submitted all the paper documents, the loan underwriting process used to take a lot of time. This was a disadvantage for any borrower who needed the loan amount urgently for an emergency. The loan application also weighed a lot on the credit score of the individual. This made it harder for new credit users to get a loan because they lacked a solid credit history.

However, the scenario has changed a lot. Applicants can now provide digital documents while applying online for the loan. This makes it convenient for many people living in remote areas in the country as they do not need to travel with their original paper documents. Apart from the inclusion of digital documents, alternative data is another innovative solution introduced in the lending market. If any loan applicant lacks a high credit score, the lending institution can use alternative data instead for the loan underwriting process. This helps many people to get loans easily at more suitable terms and interest rates.

Introduction automation and data analysis in the loan underwriting

Previously, all the steps of the loan application and underwriting process were done manually by employees of the bank or the lending firm. This is why the credit risk assessment of the loan applicant took a long time. Nowadays, most lending institutions have started using online services and solutions to make these processes faster. Many algorithms and machine learning models have come up that can analyze the loan applicant’s data credentials and check their creditworthiness. The introduction of such automation and data analysis in the loan underwriting process has made it swifter, inclusive, and transparent. These solutions allow credit risk assessment of the applicant to consider more factors apart from their credit score like the alternative data.

The lending institutions also use data analysis for more than just the credit risk assessment process. They can use it to map out the factors that can help more people from remote areas to access loan services. It can also detect the parts where automation can replace the manual processes to make the loan underwriting and approval process more effective.

We can see that these two innovative solutions have made the lending market more accessible to people, especially from remote and rural areas. This is why most banking and lending institutions have started implementing them in some ways in their credit underwriting processes.

How to choose a trusted digital lending platform for loans?

Apart from banks, people have started applying for loans on digital lending platforms. It is because these platforms do not need multiple documents for doing the credit risk assessment on loan applicants. Although people can now easily get small loans from their homes, it is crucial to check the terms and conditions of lending platforms before applying for one. As a borrower, it is important to be aware so that you can prevent yourself from falling into debt traps. Here are some tips for selecting trusted digital lending platforms.

Follow these guidelines while choosing a digital lending platform:

• Never trust in off-market applications that provide loans: Only trust those lending platforms or applications that comply with the rules set by regulatory bodies. If you operate on android or iOS platforms, select those lending applications that conform with the regulations of the app market on them.

• Confirm if you can pay out your loan on time before borrowing: Although lending platforms provide swift loans after their credit risk assessment process, it is your responsibility as a borrower to ensure that you pay the installments or repay the loan before the due date. Failure on this part can lead to adverse situations like getting a high-interest penalty or a huge fall in credit score.

• Read the terms, conditions, and contract attentively: Surveys have shown that most people applying for loans on digital platforms often do not read the terms and conditions associated with the loan. Neither are they aware of the exact details of the lending contract. Such negligence can lead to serious consequences as the lending platform can take strict actions in case of loan defaulting. As a borrower, it is your responsibility to be financially aware of all such regulations before applying for a loan.

• Analyze your credit report regularly: Before applying for any loan from digital lending platforms, you must read your credit report first. It helps you to analyze your credit score and financial record. You can get an idea of whether your credit underwriting process will be smooth-sailing or not from this report.

It is important to maintain a good credit score and be financially aware to get favorable terms and interest rates on loans. Follow the above guidelines to prevent yourself from falling into any financial or debt traps.

How to improve credit score for the underwriting process?

The digital lenders have to make sure that you are creditworthy enough before lending money to you.  The procedure that follows inevitably after the submission of a loan application is the underwriting process which determines whether the borrower is financially stable enough to return the money. The loan application usually needs to be submitted along with plenty of documents which are the indicators of your financial stability. Now among all the factors, credit score plays an important role, the higher the score the better and there is no need to stress the impact of a lower score. But if you really want to clear the underwriting process and get approved for that loan, then take steps to improve it. Here’s how you can do it.

Tips to improve the credit score for the underwriting process:

• The first step that you should take is to get an update on your current credit status. Things can truly improve when you know where your credit score stands on the scale of 300-900. If it is average or, low then you can immediately take the steps to boost it. But before you progress, you have to check whether there are any kind of errors in the report or, not. If there are errors then you have to opt for credit repair to remove those errors from the report.

• To ensure that your credit score is impressive enough for the credit risk assessment process, you must make the payments that have been delayed so far. Clearing away your payment is essential for your score, and make it a point to pay on time.

• Debt clearance would be another factor to consider while dealing with negative credit scores. If you have too many small debts, settle that by taking out a lump sum amount. You can start repaying that later once all the other debts are cleared. However, even if you do not want to go with this solution, still take measures to clear away accumulating debts.

Take care of your credit score and make sure that you are taking the necessary steps to improve the score, and getting that loan approved.

The digital lending platform is welcoming new trends

The digital lending platform is definitely undergoing many ups and downs especially after last year which definitely engulfed us in the shadow of uncertainty.  But here we are not merely talking about the abrupt changes that took place and are shaping the lending landscape, but we are also including the ones that have been gradually surfacing over sometime. The digital lending platform is undergoing changes and it is time to take note and understand the changes so that you can be aware of them and be prepared for the new lending rules.

How digital lending is changing?

• Due to the pandemic last year which is still ongoing and we are still under lockdown, there has been a big shift in the lifestyle. People are working from home and many have gone back to their home towns as well, things can be a little complicated for all. So, there is a trend among the people to spend money in online shopping and they are also buying expensive items like laptops, dishwasher and so on and so forth. The trend is gradually shifting towards consumer loans and the digital lender can completely change the game, if they tap into these segment.

• Another trend which is emerging is that there is a shift towards small loans, mostly the borrowers are reaching towards small amounts which they can return, as their financial situation also altered due to the pandemic situation. However, another thing to note here would be that they are intent on the short loan tenures.

• The emergence of the alternative data for tackling the credit risk assessment process for those who do not have any previous credit history, has been one of the most significant changes something that is reshaping the lending platform.

The digital lending platform is indeed changing and changing for the better, keeping track of the changes is essential for you, if you want to take advantage of them.