How Your Creditworthiness is Assessed?

Applying for a loan and getting approval is a process that is full of a good measure of stress and anxiety. Whether it is a bank, or, a fintech that you have approached for the loan they are not going to lend the money unless they assess your creditworthiness. This process is mandatory and at the end of which you get your approval if you are considered eligible or, not. You are familiar with the term, but do you know anything about the process?

Here's is how they do it-

When it comes to creditworthiness, two factors are taken into account one being your ability to pay back the loan along with how likely you are to pay back the loan. The credit score(300-900) plays a big role in the process and CIBIL, Experian, Equifax and CRIF HighMark are the agencies that are in charge of generating the credit score based on the data shared by the organizations. There are several parameters such as your payment history, credit enquiries, credit utilization, credit mix, on the basis of which the credit score is decided and the better your credit score is, the easier it is for you to get the loan, it does play a crucial part in the credit risk assessment.

Now the criteria would always vary and the institutes might have their own parameters which they would like to factor in during the process.

The inclusion of alternative data

The problem happens when a customer does not have enough data for getting a good score, or, even any score. However, now many institutes have started resorting to alternative data to assess the creditworthiness of such customers. The data is gathered from your mobile transactions, bill payment history and other such sources.

Usually the factors that are taken into consideration are your financial ability, non-banking credit history that might include your mobile bill payment pattern, or, even negative incidents like a bounced check.

In fact now the digital lenders are giving preference to using a mix of both traditional data and alternative data to get their assessment done, as it enables them to get a complete picture of the person they are about to lend the money to.

If you are interested in learning more then check the full blog here at: https://www.algo360.com/heres-how-your-bank-assesses-your-creditworthiness/