Getting money when you need is no more a problem today. There are many kinds of loans available and credit cards are extensively used to meet the needs for additional funds. Personal loans especially have become very popular due to its ability of providing money very fast without asking any questions. One thing that is common for being considered for any loan is your credit score. Having a satisfactory credit score is the minimum requirement to secure loans at favorable interest rates.
But the question that arises is – does everyone have credit score that is awarded by the credit bureaus? No, certainly everyone does not have credit score attached to their names. People residing in lower income areas and even millennials who defy the credit and banking system are mostly out of the ambit of credit rating. Then how will such people manage to secure loans?
Determining credit worthiness by other means
The purpose of credit rating is to ascertain the credit worthiness of individuals. How much reliable the person might be as a borrower is what lenders are interested to find out and use the credit rating as yard stick. From the lender’s perspective this seems to be the most logical approach because for online personal unsecured loan lenders have no other way to assess their risk exposure. Personal loans pose good amount of risk for lenders as there is no way to protect the loan in absence of any collateral security. The only way that people without credit rating can be considered for loans is to find out some other means of determining the credit worthiness.
Introducing new methods for credit rating
In order to make the credit rating system more inclusive, innovative methods that use technology aggressively have been discovered. Moving away from the traditional method of determining credit score, new systems based on technology have been introduced to gauge credit worthiness of people. This will help to include those people who are left out of the ambit of credit rating and make the financial market more inclusive.
New paradigms are being used
Indicators that are used for determining credit worthiness have been changed in the new method. The manner of generating credit score has also changed. How one uses the mobile phone is an indication of the economic activity of the individual. By analyzing the voice calls and text messages exchanged it is possible to assess the level of economic activity. The data is being used by credit bureaus to determine credit score. The financial habits of a person are also gauged by sending a questionnaire to individuals.
Social credit score
With widespread use of the social media, lenders are trying to create a new method of determining the credit score. Named as social credit score it is the new order for determining credit worthiness that would enable those without formal credit score to gain access to personal loans. The activity of users of social media bears close link to their economic status.
Access to finance is now being made easy so that people without formal credit score can also avail the benefits.
About the author – Tom Benedict holds an engineering qualification but has worked extensively in the finance sector. He is a respected name in the industry and keeps writing about the progress that has happened in the area of online personal unsecured loan. Spending time on the beach is his favorite past time. Advising on personal finance is his passion.