Factors To Assess The Creditworthiness Of a Customer

 

The meticulous paperwork that follows after applying for a loan from a bank to successful completion of the formalities makes the lender available for loans. The decision of financial institutions for getting a good real-time credit score and customer's creditworthiness is based on two assessments- the ability to pay and the willingness to pay.

Yet, there are cases when the actions of the client regarding providing goods and services or paying later determine creditworthiness. Through these institutions, managing credit can be done at its best and the financial risk can be lowered. 

How are the real-time credit score and the creditworthiness determined?

The timing of the payments, the due bills and the repayment of loans determine the real-time credit score. This score signifies how deserving a customer is for availing credit and thus, counts for its creditworthiness. There are multiple factors to this, like revenue, payment history, credit score, outstanding liabilities, etc.

Take a look at the 5Cs of creditworthiness

In total there are 5Cs on which the creditworthiness of an individual depends. It also determines its ability for credit risk management. Lets' take a look:

Character

This is based on the dependability and trustworthiness of a customer. For establishing a customer's character, his/her credibility and background play a very important role in data enrichment. In this case, the most important role is played by the credit history that helps in evaluating the customer's character.  This history contains a detailed analysis of the customer's credit report and score and also showcases how long the customer has continued business, been in bankruptcy, made payments on time or not, etc. The credit score must always vary from 300 to 850. The better the score, the better the creditworthiness.

Capacity

The capacity of a customer refers to his/her ability to pay debts on time. The only way to evaluate this capacity is by checking the cash flow statements, the business debt and the payment history. These pointers also help to determine the overall health, overall cash flow and Debt Service Coverage Ratio (DSCR) Debt-to-Income ratio (DTI) of a company.

Capital

The total financial and non-financial funds that are owned by the customer determine the capital. This also helps to understand credit risk management. While the customer extends his hand to other companies, the fixed assets and other instruments play a vital role. The statements presented by this company help get a clear picture of the capital growth, whether the customer is risky or not and a higher credit limit.

Collaterals

These are a part of every industry and are essential for data enrichment. Here, the customer commits a loss of credit in case his/her assets are at risk. This is why the companies require collaterals as an assurance for extending the credit. Especially when the customer has opted for high-risk, the company always asks for collateral which can even go to bad debts.

Conditions

The final 'C' that determines the real-time credit score and creditworthiness is the conditions. These are developed by the company as part of the policies and economic conditions or the regulations for the customer's region of operations. A customer who has a geopolitical environment is sure to be more creditworthy due to its low economic risks. Customers belonging to industry type, currency fluctuations, etc.  have privileged  payment terms and conditions 

The credit score obtained from different data incorporates must-have new factors like financial ability, past non-banking credit and even credit history, non-banking transactions, assets, etc. The ability to grant credit should always be based on the customer's competence to manage and repay the loans on time.

How does alternative data for business support financial inclusion in India?

 

The usage of alternative data is essential for investors especially while guiding the investment strategy. This involves credit card transaction data, mobile device data, IoT sensor data, satellite imagery and much more. Such alternative data help in financial inclusion in India. Some industries even use this data for tracking flights, government contracts and even congressional trade.

This new data source is directly gathered from customers in a specific manner. It is not limited to only the cardholder's name but also goes beyond it, up to the motivations and intentions of using the card. Due to this alternative data source, several predicted sales, economic predictions and future purchase intentions are categorized for specific retailers.

Learn about the benefits of using alternative data for financial inclusion in India

Managers use alternative data to go through the programs and the news to verify a decision. These enlarged databases help in presenting a better picture of larger and better dynamic alternative assets. The credit generation and distribution are clear to all. So let's understand how this alternative data leads to data enrichment.

      ·         Having alternative viewpoints and unforeseen insight

For analysing a person's entire data, a series of sources are required. Through this, the catch points about different people will become more visible compared to using the traditional methods. This way, they are able to give a close prediction for the market move and unforeseen insights.

      ·         Keeping transparency in the performance of the company

Portfolio managers give historical insight into the performance of the company, starting with quarterly earrings, financial statements and reports for the quarterly earrings and how they go with reactivating the investment strategies. This method of alternative data helps the portfolio managers and the investors for getting signals free based on the company's performance.

      ·         Providing a competitive edge

By predicting the future related to the market. It gives a competitive head and makes it easier to understand things at a possible deal or an investment made beforehand. Alternative data not only provides investment strategies but also provides methods of alternative credit scoring.

      ·         The future of alternative data

The fundamental firms incorporate existing hypotheses regarding investment inputs of stuff like the quants that are put into alternative stuff into models. The skilled analysts use well-structured feeds and benchmarked data sets for financial inclusion in India. Even the government of India introduces an effective strategy for resolving the organisational issues and the conflicts resulting from them. 

Further, these are also kept in mind, serving the architecture of alternative credit scoring.

•       Creating an alternative data framework
•        Automation of the mundane tasks
•       Clear data and interrogation
•       Using a big data ecosystem
•       Embracing the  change
•       Leverage consultants

For taking advantage of the alternative data and using it for alternative credit scoring, the system should control the onboarding of new customers. These will be added with minimal effort and help in gathering new data sources. However, before adding the data, it must be authenticated again and should be able to carry all the data sources onboard.

What Are The Ways To Apply For A Credit Card If The Real-Time Credit Score Is Low?

 

By using a credit card, one can handle most of the financial decisions. Be it buying an item at the store or paying for food, credit cards always come in handy. In the current situation, these have turned out to be one of the most used items by people. Further, it also improves real-time credit scores and makes way for availing for future loans.

Several citizens hold this card as an object that can be used as a liability. This is done to protect the digital economy by contributing some money to the increased use of credit cards.

What is a real-time credit score?

The credit score indicates the creditworthiness of an individual. This is a three-digit number that determines the credit history, comprising of the credit history, credit report and potential to repay loans back. Before providing a credit card, the individual must know about the ways of credit risk management before making payments.

Methods to apply for a credit card with a lower score

Most lenders prefer giving loans to people who have a better credit scores. This protects them from any kind of bas asset management. Even banks try to avoid giving loans to such people due even though they introduce the method of financial inclusion in India.

Still, there are some ways by which a person can receive a credit card even with a low credit score. Let's take a look. 

      ·         Apply for a credit card through a primary bank

Banks do not offer any kind of free credit cards to their customers. Since these are the ones who have the entire credit history of the individual, starting with their real-time credit score to their credit report, evaluating their creditworthiness is easy. Thus, by using a savings account as an asset, one can apply for a credit card.

      ·         Getting a secured credit card

Often the credit card that is received by the individual is in an unsecured form. This is done by the bank so that a person with bad credit cannot apply for a card. But one can apply for a credit card based on the pledging of an asset of high value like the FD (Fixed Deposit). However, to maintain this, one has to develop strategies for credit risk management.  

      ·         Receiving a higher amount of fee for credit cards

Individual who owns a credit card has to give a fee as a part of financial inclusion in India. However, if the individual has a good credit score, this fee can be reduced. But, to improve credit scoring, one can apply for a credit card that has a higher credit fee. The individual can use it later on to improve the worsening credit situation and then shift to lower credit fees.

Although this can never be denied that a good credit score is always the first key to availing of a credit card. Still, if the user has the ability to pay fees on time and is sure to not overspend any amount of money can use these above methods to avail of a credit card.

How Is Credit Score Different From Credit Rating?

 

The concept of credit involves various other terms that you learn about throughout the journey. Two of these terms are most commonly known - credit rating and credit score. The real-time credit score. The credit score refers to the score that you earn by paying loans and other debts on time while the credit rating is a rating that is given to corporations after assessing if they can meet the final commitments.

To understand the concept of credit score and credit rating and improve the condition of digital lending in India, it is important to grasp the concepts of both credit rating and credit score.

Real-time credit score Vs. Credit rating: Differences

There are significant differences between credit score and credit rating. Let's learn about them.

    1.      What they mean: The credit scores of an individual are calculated depending on the consumer lending decisions. The real-time credit score is determined by three bureaus. This credit score is mostly the score gained by repaying the borrowed money on time, maintaining the right balances and payment of all due bills before the due date. The higher the credit score, the better the chances of availing credit at the time of need.                                                                                            

Credit rating on the other hand refers to all the agencies that set their own scales. The financial history of these agencies includes the repayment and borrowing of loans. The agencies are then given credit based on this financial history.

2.     How are they determined: The credit scores are determined by the agencies based on the individual's credit history. The credit scores are calculated similarly to the credit ratings. You need to maintain your credit score to avoid credit risk management.

But the credit ratings are based on the people who are involved in making high transactions. There are two types of credit ratings- speculative credit rating and investment–grade credit rating.

     3.      The limits involved: The credit score is expressed in numbers. The system of digital lending in India is based on these numbers. The scale for credit scores starts with 300 and goes up to 900. The more the credit value, the greater is the creditworthiness.

A limited rating scale defines the credit rating. They are then represented in a letter-grade format. The highest rating is AAA followed by AA, A, BBB, BB, B and so on. The lowest of this credit rating is D.

      4.      Ways to increase it: The easiest way to improve a real-time credit score is to keep it stabilised. The more you pay your bills and debts on time, the more the chances for the EMI and loans to get sanctioned.

The credit rating can be improved if the individual maintains the credit score. A good credit score does not help in better credit risk management, it also helps to improve the credit rating of the agency.

These were some of the biggest differences between credit rating and credit score. You can always target maintaining good credit behaviour to enjoy the benefits of a good credit score. Try to keep minimum debts in order to keep up a good credit score.