Credit Offices Going through Changes, Difficulties
Your FICO score: As an individual, it determines your “creditworthiness.” Your personal score can even sometimes affect getting business credit, in the early days of a start-up.
But an intriguing article on the Pymnts.com website asks, “are the days of the FICO score as the be-all, end-all consumer credit scoring standard coming to an end?”
In seeking to answer their own question, the overview says that “driven by alternative lending players who’ve… developed their own lending criteria based on proprietary algorithms, a consensus is emerging that the backward-looking FICO measurement system could perhaps stand a digital age makeover with models that are based more closely on the real-time data consumers are producing, as opposed to historical data about their spending and debt management.”
“‘FICO-based underwriting doesn’t do a very good job of answering two questions: ‘Can you pay us back, and if you can, will you pay us back?’ And that’s what we’re really good at seeing, because we look at thousands of small data clues that give us the answer,’ Doug Merrill, CEO and Founder of ZestFinance, said to Pymnts.
The article notes that Zest is one of a new batch of “credit rating” companies all considering additional digital-age metrics, rather than keeping all potential consumers stuck with a score that penalizes them for having been in the middle of a Great Recession for example.
This comes at a time when traditional credit bureaus find themselves on the defensive over security issues, particularly Experian, in the wake of the T-Mobile customer hack.
How Can These Bureaus be Trusted
We reported on the hack last week, and following Experian’s claim that only servers of its subsidiary, Decisioning Studios, were affected, there is a strong call for both the Consumer Financial Protection Bureau and the Federal Trade Agency to investigate whether other Experian databases experienced breaches, according to the BBC.
One Experian critic asked “If the server holding the T-Mobile files was subject to fewer security protections than the full Experian credit reporting database, why? If it was subject to the same protections as the credit reporting server, doesn’t this raise the troubling possibility that the server holding highly sensitive credit and personal information of over 200 million Americans is vulnerable to a data hack by identity thieves?”
Regarding the “identity” individuals assume when reporting bureaus like Experian determine their creditworthiness, newer alternatives such as ZestFinance actively employ “machine learning and extensive analysis of big data” to adopt a completely different underwriting approach.
Revolutionizing Credit Scoring
“With a team of some of the world’s best data scientists from Google and lending experts from Capital One, ZestFinance analyzes thousands of potential credit variables – everything from financial information to technology usage – to better assess factors like the potential for fraud, the risk of default, and the viability of a long-term customer relationship.”
So in addition to including how long one has kept a mobile phone number, what are the other implications? Zest says “our big data underwriting model provides a 40% improvement over the current best-in-class industry score. That translates into more accurate credit decisions, which leads to increased credit availability for borrowers and higher repayment rates for lenders.”
All of which means that the economy that helps keep your business going flows that much more smoothly — and accurately. And as it flows, let AVPS help you process those payments, however they’re coming in to you.
Even if it’s via the same mobile phone number your customers have kept for years.