The Growing Significance of Alternative Data in Credit Underwriting Process

The digitization has brought about many significant changes and the ways we conduct businesses have also changed. The same could be said about the digital lending platform. The last year especially taught us many hardcore lessons, and one of them is adopting alternative measures to remain functional. In the field of loan underwriting process, the applicant has to go through a screening process during which his creditworthiness is measured, the lender needs to be assured that the borrower can return the money.

The problem with the process is the fact that usually traditional data is resorted to when it comes to measuring the credit score. Now the first time borrowers will definitely not have any traditional credit history and therefore it would be not possible to find any data. Their loan applications would invariably be rejected as the credit risk assessment process will not have a reference.

The significance of the alternative data in such scenarios is simply hard to overlook. The data which is gathered from your mobile bills, your shopping history, your social media feeds and other numerous sources do give the idea about your financial stability or, instability, your credit record, or, even your financial behavior. In the absence of the credit data, such alternative data could indeed come in handy as the data can solve the dilemma of how to judge the creditworthiness of the people who do not have any traditional data.

In a country where a large number of the population are from the villages or, remote areas who do not come under any documentation process, and for whom it is not even possible to access financial services including banks because of the distance, they will never be able to access any loan. The reason is that they do not have any records, so, basically they will always remain financially behind everything. The only way their progress could be possible when they will be able to access financial services and loans that they can invest in a small business or, in a venture to earn financial independence. Without their progress the nation would not progress.

The alternative data solves this puzzle in a manner that benefits both sides. Those who are undocumented they can get the credit, and the alternative data gives a 360 degree view of the person concerned, which means the digital lenders would be secure too.

The alternative data would definitely pave the way for a brighter, and secure financial future.