The credit scoring industry is more than six decades old.
The world of credit scoring has generally been slow to change since 1956 when the FICO credit score was first created.
But recently, with the advent of financial technology, or fintech, a slew of solutions and developments have occurred that each promise to upend how credit is used, as well as how credit data gets obtained, analyzed and granted.
Here’s a look at three ways that fintech is the changing credit scoring industry and how you manage your credit. These three technologies also help you do new things with your credit that weren’t possible in years past.
1. Voice Activated Technology
What’s New: You can use voice-activated technology to get your credit score
You know that you can use voice-based services like Apple’s Siri or smart home devices like Amazon’s Echo to request information on anything from the weather in your region to the time in another part of the world.
Now you can do the same voice-activated technology to get your credit score or even block access to your credit files.
Experian, of the of three main credit bureaus, recently announced a partnership with Amazon that lets consumers link their Experian CreditWorks accounts with their Amazon Alexa devices in order to simply “Ask Alexa” for an update on their credit score and obtain broader credit information and education.
According to Experian, 67% of millennials that Experian surveyed have questions about how credit scores are calculated.
So using natural language understanding and processing, the new Ask Alexa innovation lets adults of any age ask an Alexa-enabled device for their unread alerts, credit and debt summary, Experian FICO score, positive and negative score factors, and “best action” from the FICO Score Simulator.
You can even ask Alexa to lock your Experian credit file, something many experts recommend in the wake of big data breaches such as the Equifax hack.
2. Machine Learning
What’s New: You can make loan payments automatically using machine learning
One of the best ways to establish or maintain a high credit score is to make all your loan payments on time, whether that’s a mortgage payment, credit card bill, car note or student loan.
Now, one company’s technology is making it super easy – and automatic – for you to do just that.
EarnUp is a technology platform that helps you allocate your money in the most efficient way in order to accomplish two goals: to always pay your bills on time, and to pay off your debts as quickly as possible.
Here’s how it works:
EarnUp automatically withdraws funds from your checking account on your paydays, when you can afford to pay some money towards loans, like a car note or student loans.
In a nutshell, EarnUp breaks your down expenses into smaller, bite-sized payments. Then they make your loan payments for you in order to make sure you remain current on your financial obligations and avoid late fees. EarnUp’s “intelligent” system further calculates the ideal amount to pay towards your debts so you repay your loans most expeditiously and with the least amount of interest.
EarnUp estimates that using their service can save the typical borrower $4,000 on the average student loan debt, or $22,000 over the length of a mortgage.
EarnUp’s machine learning technology – which tracks details of your finances, like your balances, payment patterns, deposits and other transactions – is so powerful that Freddie Mac, the big government-sponsored housing agency, has teamed up with EarnUp to let select people make sure their bills/mortgages get paid on time.
EarnUp normally costs $9.95 per month. But under the Freddie Mac partnership, new users can get free access to EarnUp for 12 months just by calling EarnUp (888-228-0341) or by contacting one of three non-profit financial counseling organizations:
- HomeFree-USA, which serves Maryland, Washington, D.C. and Northern Virginia;
- GreenPath Financial Wellness, which serves the Detroit metropolitan area, and
- InCharge Debt Solutions, which serves all other areas in the U.S.
3. Artificial Intelligence
What’s New: You can get a car loan using artificial intelligence
Have you ever been turned down for a loan because you had so-called “thin” credit, or perhaps no credit at all? Traditional bank underwriting models typically cast borrowers with little or no credit histories as riskier, so they might reject you.
But companies like ZestFinance want to change that. ZestFinance uses machine learning and artificial intelligence to help banks and other lenders approve credit-worthy borrowers that the banks might typically miss.
Here’s the heart of the problem: According to ZestFinance, traditional credit-score systems use less than 50 data points to determine an individual’s creditworthiness. But that’s just a small fraction of the public data available on any given person.
The executives at ZestFinance, which was founded by Douglas Merrill, the former CIO of Google, say there are thousands, and in some cases tens of thousands of pieces of data that help accurately predict a person’s credit worthiness. And ZestFinance helps spit out an answer in less than 10 seconds flat!
Perhaps that’s why major lenders are getting on board with ZestFinance and the premise behind the company. For example, Ford Motor Credit, the auto-financing unit for Ford Motor Co., announced in August 2017 a major change in its loan approval process.
Ford Motor Credit now looks beyond a person’s traditional credit score when deciding to whom it should grant car loans. The goal, Ford Credit officials say, is to provide more access to credit to those with limited credit histories. In turn, of course, Ford is also hoping to sell more cars to an expanded pool of prospective buyers/borrowers.
Ford Credit’s new policy came after it entered into a contract with ZestFinance in 2016, to conduct a study of how well alternative data could predict the likelihood of loan applicants defaulting.
The initial study only included a limited group of existing Ford Credit borrowers. But in 2017, Ford Credit extended this new type of underwriting to all applicants, particularly people with thin credit records.
Now factors like whether a person put the same cell phone number on previous loan applications and whether an individual has an occupational license is all part of the big picture set of data being analyzed to approve loan applications at Ford Credit.