Everything wrong with traditional credit scoring in 3 headlines

“Want a perfect credit score? Get more credit cards”

“These 3 surprising hacks can seriously boost your credit score”

“Breaking down credit scores and tips for how to improve them”

Noticing a trend here? Are these headlines not insane?

In order to improve their credit scores, consumers are being encouraged to get more credit cards and jump through ridiculous hoops (or “hack” as one “journalist” put it), just so they can get access to more credit. Seems a little, odd….

Then you see something like this.

This woman had a fantastic credit score, 820 to be exact. She had access to all sorts of financial products.

$20,000 line of credit - check.

$17,000 credit card - check.

26 year old bank account with a reputable bank - check.

Now, none of those credit products were carrying balances - they were kept at $0 balances to avoid interest charges. But when a $15,000 purchase was made on a $17,000 credit card, which was promptly paid off I might add, the consumer's credit score went from 820 to 738.

Wait, what?

Let's get this straight. In order to get a higher credit score, and thus access to more favorable credit products, you need to get more credit cards. But if you use them, your credit score goes down. It seems to us that consumers are stuck between a rock and a hard place.

The system is broken.

We get it, scoring people and calculating the likelihood they pay back a loan is difficult (we should know). But it’s time for the market to get with the times and embrace REAL alternative data and advanced scoring methods.

Oh, and the big bureaus making little acquisitions of data and so-called AI companies don’t count towards embracing AI and alternative data.

Why is it so important to embrace Cloud/SaaS, Mobile, Alternative Data and real AI/Machine Learning methods?

4 reasons:

  • More consumers get access to the financial products they need. Roughly 64 million consumers in the US are unbanked or underbanked because they can’t be scored by the big bureaus.  And that’s according to one of the culprits, themselves (call me and I’ll tell you who :) That’s 64 million folks who the banks and the bureaus are essentially ignoring.

  • Consumers actually get fair pricing on their financial products, instead of an exorbitant rate because everyone is being treated like they might be a bad apple.  If you know a data scientist, ask them about the value of “KS” when building a model to rank order people...and you’ll get a sense of why Trust Science customers can do proper, fair Risk-based Pricing.

  • Lenders become more profitable because they are originating more GOOD loans WHILE (or because?!) they are also reducing their default rates!

  • Loan origination can happen in minutes, or even in seconds (online) instead of taking days or weeks.

Now, if only there was a scoring solution out there that did all of that…….

;)

Zac Holt