The ways that businesses and consumers make transactions are dramatically and rapidly changing thanks to technology. Long gone are the days of mailing checks, ordering from a catalog or even needing to carry cash. Now the swipe of a bank-linked smartphone at a store register, emailing money or paying via cryptocurrency are increasingly commonplace. As we move into a more technologically advanced society, some signs are pointing to traditional credit history being a thing for the history books.
Up until very recently, in order to get a loan, you needed existing credit to prove that you have a history of repaying loans. With roughly 3 billion un/underbanked people worldwide, a sizable population likely won’t even have the credit history needed to be approved for a credit card. They can’t build a credit profile without securing credit, and they can’t secure credit without having a credit profile. Fortunately, this is becoming a conundrum of the past.
According to Ankush Tewari, Director of Strategy and Market Planning for LexisNexis RiskView, 15 million consumers had their credit scores impacted as a direct result of the economic downturn of the early 2000s. While the economy may have recovered, many consumers’ credit scores have not as it can take between seven to 10 years to recover from late mortgage payments and bankruptcy. Knowing this, credit scoring issuers are exchanging narrow lenses for wide ones and determining creditworthiness through a variety of factors.
While originally intended for decentralized, deflationary, revolutionary monetary systems like Bitcoin, blockchain is being used to bring about inclusivity. Through blockchain technology, new and nontraditional ways of credit scoring are helping to solve the lack of flexibility and understanding within the bureaucratized credit scoring industry. Credit scorers are able to look at the big picture by securely accessing user data and create opportunities for people across the globe — something that wasn’t possible just a short while ago.
As previously discussed in our blog post Blockchain-Based Credit Scoring Outshines “The Big Three,” a new wave of lenders are dealing with credit scoring very differently than in years past. In fact, surprisingly, it’s now possible to get a mortgage with zero existing credit. Even larger credit scoring companies are starting to take a more holistic approach to assigning scores to consumers that come to the table with no credit. They’re doing so by looking at a variety of factors including student loan payments, utility/phone bills and the like.
Along with the materialization of blockchain has come many innovative and unforeseen uses of the technology. Blockchain was designed to disrupt decentralize currency. It has effectively offered up alternatives to otherwise bureaucratic institutions, most notably the financial industry. The traditional methods for acquiring credit are making way for new processes that offer more inclusivity and open up financial opportunities to many more individuals.
At Colendi, we’re using a decentralized, AI-based protocol to create an inclusive credibility evaluation. By using over 1,000 data points to determine a Colendi Score, we’re giving consumers the best shot possible to bolster their credit and participate in microfinance lending. Our goal at Colendi is to reach 1 billion un/underbanked consumers by 2028 through democratized credit scoring, and while traditional credit scoring may be headed for the history books, we’re very much looking forward to the future of lending.