Credit Risk Assessment With Alternative Data

 

The credit risk assessment procedure is all about assessing the creditworthiness of the borrower. Accessing a digital loan can be easier when you have a solid credit history to back you up. But that can be completely messed up if your credit history is completely messed up, or, worse is not there. The first-time borrowers do not have a credit history to back them up on the digital lending platform. Furthermore, things can truly get difficult for the people who are under-banked or, unbanked they do not have the sufficient document or, even credit history to back them up. This earlier would result in straightaway rejection. But things are changing and now people have alternative data to back them up.

The Role of Alternative Data in The Credit Underwriting Process:

So, basically what is alternative data?  The alternative data is not the traditional credit data or, does not emerge from any traditional source. Now that we have a ubiquitous digital presence, it becomes easier to get hands-on data, because we leave a digital footprint behind on the digital platform. We roam around social media platforms, use mobiles, pay bills digitally, do online shopping, through all of these activities data gets generated. This data actually holds the key to information and crucial information regarding our spending pattern and financial situation.

Now the situation gets smarter thanks to this alternative data make it easier for digital lenders to assess the creditworthiness of the applicants. They do not have to be at risk and the data gives them a clear idea regarding their customers. This enables them to understand whether a particular client is able to pay back the money he is borrowing, being assured he can lend the money and increase his business prospects and these people with no traditional credit history too can get the loans.

The alternative  data does play a crucial role in the loan underwriting process and soon it would be widely adopted.