Today knowing your credit score is as crucial as; knowing your social security number. Credit score plays a vital role; in determining whose loan request should be approved and what interest the banks should levy. Credit scores help determine the borrower’s credibility and financial capacity to return the loan. Whether a person is buying a smartphone or an apartment, their credit score determines the amount of initial payment required to be; deposited. How can AI help banks determine their customers’ credit scores? Several AI organizations like Genify have developed credit scoring API for banks, which will make credit scoring easier and better! Continue reading the article to know more; about what role AI plays in credit scoring.
How has AI made it easier to calculate credit scores?
A credit score affects the financial life of a person significantly. Its numerical value ranges from 300-850. A higher credit score is an indicator of the borrower’s creditworthiness. Banks and lenders rely on credit scores to determine the probability of repayment of loans.
Several factors are considered when calculating a credit score; payments history, length of credit history, the total amount owed, types of credit, etc. Among these, payment history is the major contributing factor.
Today, artificial intelligence (AI) has made it easier for money-lending organizations and borrowers to give fast and accurate calculations of credit scores. Several AI organizations have developed credit scoring API that helps financial organizations in making credit lending decisions. The following points will help you understand why an AI-based credit scoring system is advantageous.
- Identification of creditworthy individuals: Sometimes, using conventional methods can result in the exclusion of creditworthy individuals from the system. AI uses a large amount of data, including current employment status, current income, and employment history; for calculating credit scores. It allows wrongly-scored borrowers to get credit and improve their credit scores.
- Reduces risks: The largest risk lenders undertake when giving someone credit is the borrower not paying it back. Unlike the conventional methods of credit scoring, AI can assess and handle a large amount of data in a short time. And because of this feature, the AI can prepare solutions for various scenarios that are proficient in concluding whether first-time borrowers are reliable or not.
- Dynamic scoring: The environmental conditions of the market is changing rapidly. AI helps organizations to adapt to sudden changes in measurable factors such as interest rates, household income, property values, etc., to calculate credit scores. Traditional methods for evaluating credit scores are; very static and don’t respond accurately to drastic changes. AI-based credit scoring systems can make accurate decisions consistently despite the rapid changes in macro-level factors.
The traditional methods of determining credit scores can be biased against economically weak individuals and deny them the opportunity to avail of credit. And since banks and other financial organizations rely on credit scores, credit scores must be calculated keeping in mind real-time situations. Many AI organizations such as Genify, have customizable credit scoring models that will help banks to evaluate their loan applicants accurately.
So, if you’re a banking organization or an individual who wants to review their credit score can check the websites of such organizations that provide AI-based credit scoring systems.