Monday, 1 February 2016

Understanding your alternate credit score

Your credit score is usually your passport to getting a loan. In India however, the largest credit database only has about 300 million records in a country of 1.25 billion. If you are one of the many borrowers without a credit score or have a thin file, your chances of getting a loan are slim.

Lending institutions such as Peer-to-Peer lending websites are now looking at ways to evaluate your credit worthiness from other sources. When a borrower doesn’t have a formal credit score or has a score which does not allow him/her to receive  a loan, the lender derives his/her credit worthiness based on digital data accumulated from various sources. 

Many lenders derive information from data accumulated from bank statements, mobile usage, online transactions, social media, etc.
  • Location services on mobile phones are used to establish places of work and residence.
  • SMS mining helps lenders understand transactions that take place in the person’s account and helps establish patterns.
  • Purchase records on e-commerce websites provide a large amount of data to be analysed.
  • Social media profiling takes place where the lender scrutinises the person’s social media profiles (Facebook, LinkedIn, etc.) to establish a person’s connections
  • Mobile bills helps the lender understand the behaviour of the person with regard to regularity and discipline.
  • Mobile phone usage (such as frequency of accepting calls against not answering them) also helps bring to light a lot of details about the person.

This type of credit valuation using secondary data is relatively new and is starting to gather attention slowly. At this point there are no pre-defined formulas that lenders can automatically use. Without any credit score, banks and other NBFCs never give out loans. 

With growth in Peer-to-Peer lending, the concept of providing loans without a credit score provided is becoming more accepted as Peer-to-Peer websites are providing their own valuation of the person’s credit worthiness.

Therefore, even for a person with a low credit score or one who does not have one altogether, getting a loan is not absolutely impossible thanks to alternative methods of understanding a person’s credit worthiness which is becoming more and more popular among Peer-to-Peer lenders.

For more details about peer-to-peer lending please visit

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