How credit score apps help get more accurate credit evaluations

June 25, 2021

New mobile credit score apps have reduced credit risk, opening up opportunities for customer segments that were previously ignored. Thanks to alternative data and new machine learning technologies, Fintech companies are now ready to explore untouched markets.

A credit score as traditionally defined, is essentially a numerical score that is given to people based on the details of their credit report and that allows lenders to determine their creditworthiness.  Traditional scores only allow people within the banking system to access a loan and thus, many cash-only individuals - such as millenials, immigrants, or unbanked ethnic minorities - are left out of the financial circuit or are penalized by having to pay very high fees.

Classic credit scores are established by making linear predictions, based on data from traditional credit institutions. They use information related to credit records, such as credit products, debt levels, payment habits, among others.  However, technological progress has shown that using this type of information alone is not enough. Not only because many trusted people are left out of the system, but also because there is a wide variety of data required for more accurate ratings that is not taken into account.

In this sense, new alternative credit scoring methods use more complete information about people, which goes beyond just their credit history. This data includes insurance payments, rents, good purchases, social network behaviours, etc.  In addition, alternative scoring methods use artificial intelligence that allows them to process the data and obtain secure prediction models instantly.

Adopting scoring apps with alternative data leads to a positive impact for both companies and people. On the one hand, companies can have a more complete view of the financial profile of potential clients and reduce the risks of bad debts in just seconds. On the other hand, more people are able to access loans and credits without the need of a credit history.