When people hear the phrase “credit score”, it generally causes groans, moans and sighs of frustration. It’s supposed to be such a simple metric, that is supposed to fairly measure your credit worthiness. Lending intuitions and retailers then apply this score to determine what level of usable credit that is extended. Nowadays, credit scores are considered in many more commercial applications, to include potential employment. This is where the credit score goes awry and is agreed by most, to be a flawed system, which can unfairly punish the victims of fraud or punish the guilty with a sentence that is much more harsh than appropriate. With everything on the line, we typically play the game and work the system with detail to ensure our score is at the highest possible level. That may soon be changing.
Recently, new credit rating agencies have redefined the way credit scores are defined. These start-ups are going to revolutionize the industry. Through the use of significant amounts of data gathered through digital activities, these agencies are able to look at factors such as job history, the quality of social media connections and even considering the use of punctuation on forms completed on the web. As disturbing as that may sound initially, considering the sheer volume of data collected and the thousands of variable the companies are considering, they may be able to more accurately predict credit and spending behavior. It may be a while before these companies can break into the industry by gaining confidence of lenders and the public alike. If you consider the alternative of the FICO scoring system, it just may be the break the financial industry and the public have been looking for.
One must consider that with only 37% of Americans having mortgages and 29% having car loans, there is almost a new frontier that could be opened in lending. Looking forward to the next decade of innovation, it is encouraging that Americans that could use a break in the lending arena and open a new, robust economic revival.