Extending Trust: New Scoring Models for Credit
What’s the most important number in your life? The number we’re referring to affects almost every financial aspect of your existence from the type of car you drive, to where you live, to how much money you can save every month. Your credit score, as one single number that affects multiple personal economic factors, is the number that has arguably the most impact on your life.
Consider mortgages, where a FICO score of 630 vs 720, will add over $100,000 to your payments over the course of 30 years. If your score is low enough you might not even qualify for a mortgage, and increasingly, even find it difficult to find a place to rent since many landlords will check your credit score. This indicates some of the problems of credit scores, as they expand into areas that are not credit related; credit scores can impact numerous facets of life and can sometimes be misleading or lack sufficient data to deliver an accurate representation of someone’s credit worthiness.
Numerous new companies, technologies and processes are delivering alternative credit scoring options to offer solutions to help address these issues. As credit scoring has such an impact, these new systems have the potential to dramatically change the nature of credit offerings. This calls for an in-depth analysis and One World Identity is on the case with their OWI Labs report: Bad Credit? No Credit? Big Identity Problem: The Definitive Primer On Identity Data In Credit Scoring.
The report examines the traditional credit scoring market, as well as the new alternatives. It covers 45 major players, emerging opportunities and challenges, expert analysis and market research and features the OWI Trust Assessment Pyramid, “a visual illustration of the scope of data collected and leveraged in various existing assessment processes. This system provides not just a survey of “alternative credit score” companies, but rather a comprehensive construct for understanding reputation scoring processes, the breadth of coverage available with each incremental broadening of assessment criteria, and the level at which both firms and regulators are operating in their efforts to balance accuracy, coverage, and compliance.”
Identity Data and Credit
Why is an identity research firm doing a report on credit scoring? As it turns out, credit scoring is really an identity issue; the type of identity data used determines how many data points to consider and where it fits in the Trust Assessment Pyramid.
Traditional credit scoring relies on a few, well-known data points, such as credit use and credit history. The newer credit models go beyond traditional data points and considers more information to make the analysis. By the time a trust assessment gets to level 04, there can be over 10,000 different identity data points in consideration.
Of course, the deeper the analysis goes, the more it relies on new models and is less proven and less regulated. These types of scoring models target consumers that don’t fit in well with traditional financial scoring such as in developing markets or thin-file individuals.
It is these new scoring models that are driving the industry forward. While most revenue and industry power is still with a select few well-established players and their traditional techniques, these models won’t work for growth markets and onboarding whole new sectors of business. Thus, they are partnering with many of the new players to investigate the new opportunities.
Using whole new levels of technology to gather, analyze and interpret data, new scoring models are creating new ways to determine risk, create more economic opportunities and drive business forward. If our lives are coming down to a number, let’s ensure that the number offers the best representation of reality and uses more nuanced modeling that is better for consumers and the businesses who want to serve them.