Measuring financial health beyond the credit score

Consumers’ credit scores get a lot of play when it comes to assessing finances and credit risk. Based on a formula that combines loan and repayment history, credit scores are often viewed as “make-or-break” indictors for loan approval.

Although credit scores are undoubtedly useful in determining loan risk, they traditionally have been just one piece of the overall puzzle financial institutions (FIs) look at when considering loan applications. Factors such as employment history, proof of income and debt-to-income ratio have all played key roles in determining whether to grant or deny loans.

Recent research suggests it’s worthwhile for FIs to consider other valuable indicators of a consumer’s overall financial health when making loan decisions.

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