In the modern financial landscape, individuals, small businesses, and large organisations are highly dependent on credit.
Your credit history and score determine almost the entire ecosystem of the availability of credit and the rate at which you can get it.
However, continuing advances in big data, analytics, and digital technologies are major catalysts in bringing about change in the credit scoring industry.
The new credit scoring models seek to eradicate information asymmetry from the current system. This will lead to a more detailed, 360-degree awareness of consumer creditworthiness.
Read on to know more about the futuristic trends in the credit scoring industry and how to increase your CIBIL score in a few simple ways.
Trends In The Credit Scoring Industry With Great Future Potential
With evolutions in the fintech space, highly predictive credit scoring models are taking shape.
These AI-enabled systems allow financial institutions to distinguish between good and bad risk and reduce credit losses.
By making the system more transparent, currently evolving credit scoring models are ensuring fairer access to credit for all.
Here are some of the trends in the credit-scoring industry that may radically change it for the better.
Transparent Scoring Through Explainable Artificial Intelligence
The credit assessment ecosystem has witnessed the implementation of highly predictive AI and ML models in recent years.
In this context, a major concern for customers, lenders, and regulators is to ensure that these decisions are unbiased, ethical, and fair.
To ensure that the decision-making process is fairer than ever before, credit agencies have started to adopt explainable AI. This model explains how AI systems assess data and form critical decisions.
When you check your credit score online using explainable AI-enabled platforms, you can access information on factors that affect your credit score.
Providing reasons behind the credit score can help banks improve customer engagement.
As a customer, you can use the information to understand and plan your financial well-being.
Resilient Decision-making With High-frequency Data
With the availability of vast amounts of data, lenders can now improve their credit scoring systems and predict repayment behaviours more accurately.
Using ML algorithms, credit agencies now look for patterns in these alternative data sources that indicate a red flag in customer’s credit assessment. A red flag may include fraudulent activity or the inability to repay.
In addition to this, alternative data sources have also shown the potential to significantly improve access to credit for those with no credit history.
Such models are also being used by lenders and refer to social media and other channels to see if a new-to-credit customer is credit-ready.
Accelerated Credit Decisions with Democratization Of Data
To expedite the decision-making process, data democratisation is crucial to ensure enterprise-wide access so that everyone can understand it.
Thus, by opting for faster data updates, lenders can accelerate decision-making in their organisation to cater to the fast-paced demands of the modern customer.
Broader Role Of Data Analytics Professionals In Credit Risk
As the volume of data is rising each day, the role and influence of data analytics professionals has widened.
Hence, these professionals will also need to stay equipped with new skill sets to stay relevant in this ever-evolving data analytics space in the credit scoring industry.
How To Increase CIBIL Score
A good credit/CIBIL score is essential if you plan to avail of a loan or get a rewarding credit card.
Another benefit of having a higher CIBIL score is that lenders will be more willing to offer you higher amounts of credit at lower interest rates.
If you are wondering how to increase your CIBIL score, here are the ways in which you can achieve it:
Clear Your Existing Dues
A credit score reflects your credit repayment history and overall debt obligations. The amount of loans and credit card balance you have affects your debt-to-income ratio. A higher ratio results in a lower score.
So, clearing your outstanding credit is essential before applying for a new loan. That said, remember that having no debt at all is not the way to increase and maintain your credit score. You need to showcase timely repayment to build an optimal CIBIL score.
Make Timely Payments Related to Credit
Clearing your outstanding dues is not enough to achieve a good score. For this, you need to pay all your EMIs on time.
Delays in EMI payment hampers your score, thus minimizing your loan approval chances. The same holds true for your credit card bills.
Instead of the minimum balance, pay your credit card bills in full by the due date. You can opt for an auto-debit option to initiate automatic transfers of EMIs and credit card bill amounts from your bank account for timely payments.
Keep Your Credit Utilization Low
Another way to improve your credit score is to control how much credit you utilise from the amount available to you.
This refers to credit card usage based on your credit limit. A high credit utilisation ratio indicates that you are unable to manage expenses within your income.
By keeping the utilization ratio low, you can avoid any additional charges and improve your CIBIL score as well.
Maintaining a ratio below 35% is ideal, which demonstrates to the lender that you are not hungry for credit.
Check Your Credit Report
You can check your credit score online on the official website of one of the four credit agencies active in India. These agencies also provide a detailed credit report based on which your credit score is determined.
An error in your credit report can also be a reason for a low credit score. You can contact the respective credit agency and register a complaint to get the inaccuracies in your credit report rectified. Your credit score will improve accordingly when your credit report is updated.
Borrow A Mixed Bag Of Credit Facilities
If you do not borrow money, you will not have a credit score. However, your CIBIL score may not increase if you take only one type of credit.
If you wish to improve your credit score, borrow a mix of credit. This includes a healthy mix of secured and unsecured loans.
Once you take on credit and repay it diligently, your credit score will improve gradually. You can check your credit score online to track its growth.
In the current credit-scoring ecosystem, your financial data is studied by banks, financial institutions, and credit agencies.
The new models will provide data in your hands, allowing you to decide how and when a lender can access it.
To facilitate this paradigm shift, many governments across the globe have come up with data protection laws. These regulations are already in the legislative pipeline in India.