In the United States alone, it is estimated that there are upwards of 60 million people without a viable traditional credit score. That is a large market for your non-bank lending institution to tap into, as those people would also like the privilege of being approved for personal loans and mortgages. Products that the big banks are reluctant to offer them due to factors that have little to do with their ability to pay them back now.
In order for your non-bank lending institution to benefit from those 60 million people, plus the millions more around the globe, you need to be able to offer what the large banks are unwilling to: easy access to credit for those who have bad or non-existent credit histories. Credit worthiness is a lot more than a number generated by an antiquated method, it is an individuals ability and willingness to pay their current debt in order to build a foundation for future wealth.
You can help these individuals achieve this by implementing a different method for ascertaining the risk involved in offering a loan product to them. Instead of looking at what they were doing financially 7, 5, or even 2 years ago, consider what they are doing today. An alternate credit scoring system will help you look into things such as:
- Cell phone
- Gas and electric
- Day care
These are all valid financial responsibilities that deserve to be considered when an applicant comes to you looking for a personal loan. You can further lower your risk by adjusting your assessment to weigh other factors such as timeliness in paying those bills and the length of payment history. A cell phone contract that has been in good standing for the last two years deserves more consideration then a credit card debt that was defaulted on five years ago. This is where the big banks lose out on opportunities to make money.
You may be shying away from alternative credit scoring systems for your non-bank lending institution, believing that long established methods have been tested with success for decades. This is in comparison to new methods that do not have the advantage of time in order to be judged on how well they actually work. While this may be a fair argument, it is also fair to say that an individual who is showing financial responsibility now by paying their bills on time will continue that trend in order to improve their financial stability.
The best way to implement such an innovative credit scoring method into your non-bank lending company is by combining a variety of factors when considering credit worthiness. For example, when an individual with no credit history applies for a personal loan offered by you, check not only how they have been handling other financial commitments, but add to your scoring method their current salary and length of time at their job. Borrowers with a significant amount of time with the same employer show a level of responsibility worthy of consideration when they need a loan to help them with a major purchase.
You are doing your business and potential clients a great disservice if you are not willing to adapt your credit scoring to meet the current needs of a vast portion of the population. By adopting a more modern method of measuring credit worthiness you are opening up your business to the possibility of profits from tens of millions of individuals.