What is creditworthiness?
Creditworthiness is a quantity measured via one’s credit score which ranges amongst 300 and 900. It is an assessment of how the borrower is probably to spend back the loan.
CIBIL, Equifax, Experian, and CRIF Highmark are the 4 agencies in India that provide their proprietary detailed credit reports and score for each and every person. Amit Das, Founder and CEO of Think Analytics says, “The higher the score, the better the lender’s confidence in the borrower. However, note that the scores could be different from different bureaus.”
By RBI mandate all bureaus want to provide at least one totally free credit report annually via their respective web sites. Also, many intermediary agencies also provide totally free credit reports by partnering with these bureaus.
Das adds, “These data sources are supported by Machine Learning (ML)-based decision-making systems, which benchmark the data received to generate a more holistic credit risk assessment for a potential consumer.”
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Credit scores derived from Alternate information incorporates several new components
- Financial capability of the borrower: The borrower’s capability to spend from their bank accounts—denoted by earnings, balance and saving trends. This shows greater the capability, greater the outcome.
- Non-banking credit history and payments: These payments and credit history supply substantial insights into the borrower’s behaviour. For instance, Das says “a post-paid mobile bill indicates a small risk taken by the telecom company on you, and the repayment behaviour therein can be suggestive of your overall financial habits.”
- Non-banking transactions and assets: Wallet and UPI transactions are now becoming a proxy for banking spending patterns/transactions. Alternate information contains info about the borrower’s assets (investments) and danger coverage that aids in understanding how nicely-organized the borrower is monetary.
- Negative incidents: Recent bounced cheque or penalties about minimum typical balance (MAB) could have a adverse impact. Das says, “Lenders are quite wary of such incidents and may not easily extend credit as a result.”
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Industry professionals say, in today’s India, as millions of men and women look to the future post-COVID, alternate information-based credit can assistance unlock the prospective of a young, educated and aspirational workforce eager to get ahead in life.