Lenders are looking at completely different and, in some cases, peculiar data to make their lending decisions. According to the Wall Street Journal, banks and other financiers are looking at whether applicants “shop at discount stores, subscribe to magazines or pay their phone bills on time.”
These revenue-driven lenders are looking for ways to approve more borrowers without taking on greater risk. By trying new metrics, banks are hoping to expand their circle of borrowers beyond their ultra-creditworthy, traditional clients.
The lending industry in the United States is basically consumer data-driven. Lenders provide data on their customers to companies like Equifax and Experian who then create detailed records on individuals. FICO scores reflect that data in a more condensed form. Recently, FICO developed a new score — UltraFICO – that takes into account how loan applicants manage their personal finances including checking and savings accounts. The new score offers a second chance to customers whose regular FICO score did not meet a lender’s standards.
AI allows companies to assess even the smallest details of a potential borrower. According to WSJ’s report, fintech startup Meritize used an applicant’s high school transcript to determine whether they would approve her loan request, despite a history of unpaid medical bills. They consider an improvement in grades as well as evidence that a student challenged themselves. By using these standards, the firm is essentially assessing a customer’s “grit”.
Another interesting factor being considered in lending decisions is whether an individual subscribes to magazines. According to credit-reporting score TransUnion, subscriptions are viewed as evidence of stability.
Purchase data is another factor that can make or break your application. Fintech ZestFinance says that applicants who spend more at grocery stores than eating out can be lower risk as are people who shop at discount stores.
Big companies collect consumer data — around the clock. That data is then analyzed and used to drive profit. Consumers’ buying patterns, bill paying trends and personal finance management are just some of the consumer behaviors that affect big business decisions.
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