Why credit unions should consider alternative credit scoring
FinTech disruptors are using data points and artificial intelligence to verify a member’s financial identity and evaluate creditworthiness within seconds. They take it a step further by funding within hours to consumers that have been shut out by traditional lenders. Credit unions continue to use traditional underwriting methods that can take weeks if not months depending on the loan product. Those who lack collateral are excluded from the formal financial system and cannot access loans largely because they cannot demonstrate their creditworthiness.
Credit reports have historically defined consumers. Good credit signals trustworthy borrowers; bad or little credit history pigeon holes consumers trapping them in a cycle of debt and limiting their opportunity for growth.
Credit reports never tell the whole story. A once-reliable borrower might have become seriously ill and incurred massive medical debt forcing them to default on a loan. A traditional credit report doesn’t take external factors into account.
There are millions of people who don’t have enough credit history to secure a loan. If you can’t get credit, how are you supposed to build credit?
Credit history provides useful information about borrowers, but is not always an accurate indicator of creditworthiness on its own.
Enter The Alternative Lending Revolution
Alternative lenders are working with these borrowers by using behavioral data to supplement credit reports and compile a more informed picture of borrowers that are seeking credit.
Alternative data scrubbed in the FinTech space includes: public records, social media accounts, and banking profiles. Credit unions overreliance on credit scores leaves few options for a borrower whose credit activity is blemished.
Credit unions that don’t use alternative and behavioral data are throwing business away. Each declined loan is a lost opportunity.