Credit scores have long been the yardstick by which lenders measure a borrower’s reliability. Traditionally, these scores have been based on factors like credit history and financial records. But what about those who don’t have a rich credit history or even a bank account? The traditional model leaves many behind. Enter the world of alternative credit scoring.
Traditional vs. Alternative Credit Scoring
Traditional credit scores rely heavily on credit bureaus and financial histories. But alternative credit scores are changing the game. Here’s how:
- Alternative Data: Rather than just looking at your credit history, these scores consider non-traditional data. Think rent payments, utility bills, phone bills, employment history, and even your savings account balance. This offers a broader view of your financial responsibility.
- Inclusion: This approach is inclusive. It’s designed for those without a traditional credit history, like young adults, newcomers to a country, or those who mostly deal in cash.
- Limitations: It’s worth noting that it is relatively new alternative credit scoring is still in its infancy, and its acceptance varies. It’s not a one-size-fits-all solution, and lenders often use it alongside traditional methods to make well-rounded decisions.
Psychometric-Based Credit Scoring
One exciting development in alternative credit scoring is the psychometric-based approach. Instead of just financial metrics, this method dives deep into an individual’s character personality traits, attitudes, and financial behaviours.
The idea? Your psychological and behavioural patterns can offer clues about your financial responsibility and reliability. Therefore, by considering non-traditional data such as these, we can help create a more inclusive and resilient financial future.
