Jun 18, 2021
With the emergence of Fintechs, new ways of credit scoring have emerged, offering a more complete customer credit profile. These Fintech startups have perfected the traditional credit rating systems through technology to find new client segments using alternative data.
Unlike banks, Fintech companies have democratized access to credit. To achieve this, they have had to invest in the construction of databases, machine learning models, and technological infrastructure to minimize the risks of bad debts. In this way, today, they are more capable of having a complete credit profile of their clients than other traditional financial entities.
Fintech companies have leveraged a series of contextual advantages to offer new credit scoring methods:
With technology, Fintech companies can access various non-traditional data sources to perform alternative scoring to offer loans to people outside the banking system. For example, some useful information is from car purchases, rental payments, cell phone data, social media information, and even mouse movements. Credolab is an example of a Fintech company offering alternative credit scoring. Through alternative data, the company generates an integrated credit rating, making credits available to people who, although creditworthy, do not currently have access to loans.
With an important commitment to alternative information, Fintechs have been pioneers in this new conception of credit scoring, expanding the market and forcing other more traditional entities to start venturing into these new lines of business.