A Path for Creditless but Reliable Americans to get Scored

A Path for Creditless but Reliable Americans to get Scored

Credit scores today are a tool which tends to keep loan rates high for the poor and low for the rich. They’re meant to act as an indicator of the reliability of an individual when entering a loan. In the pursuit of this end, they’re effective. Although that’s not to say that they’re perfect.

Most worryingly, there are lots of Americans today who don’t interact with credit but who are entirely reliable. Some people don’t like credit cards, others could be new divorcees, or immigrants, or are simply new to credit. These people, even while paying their bills and taking care of themselves for years, can have entirely invisible credit.

This is hard because when these Americans apply for a loan, they’ll either be denied or given a terrible rate. Credit in this case isn’t a marker of reliability and the likelihood to repay the loan. Instead, it acts as a marker of not having any credit sources. This is where alternative scoring methods come in.

Alternative data scoring methods, typically built on AI, will look at other sources like utility and telephone bills. This allows those who don’t opt into typical credit systems to still show their reliability across time. These new scoring methods won’t completely change someone’s credit, but they may increase it by 10 to 25 points. Even more importantly they could move 8.4 million more consumers into scorable ranges. 

It’s in this process that the reliable but creditless Americans across the country could start building some credit. This opens up countless avenues for investment and even less predatory emergency loans. It won’t matter for some, but it will make a world of a difference to others.