How first-time borrowers without a credit score can get a loan

There can be several cases where a loan is useful. Generally, credit scores are used as an important determinant in the traditional process of granting loans. However, if you are just getting started with your first line of credit, it can be difficult to have a good credit score available that bank officers can check to sanction your loan. As a result, many first-time borrowers, also known as New Credit Customers (NTCs), find it extremely difficult to complete their loan application process.

Much to the relief of NTC clients, the rise of technology and the use of alternative data in the underwriting process have made traditional lending practices obsolete. Understanding an applicant’s creditworthiness has turned out to be more than their credit rating. Alternative data has opened doors for many considering factors like cash flow, financial etiquette, utility bill payment history, investments, spending behavior, etc., to provide a comprehensive understanding of a client’s creditworthiness.

There has been an increase in India’s affluent middle class as well as immense growth in the rural economy. This trend has been mainly supported by the increase in expenses and costs which continue to hamper the consumer boom in India. In addition, the rapid adoption of technology has also created an increased field of acceptance for new financial tools, thus allowing the Indian credit market to evolve into a self-sustaining and self-generating market. Between March 2000 and March 2021, the average domestic credit growth rate in India increased by 15.1 percent. This growth is mainly due to personal loans and the increasing use and penetration of credit cards. Of this total, nearly 92 percent of credit card holders in India demonstrate good and timely repayment habits.

Challenges for people with no credit score

During the traditional lending process, data such as credit maturities, credit score, unpaid debts, debt repayment habits, other loans, and repayment history are taken into account to assess the solvency of an individual. While this method can be useful for applicants who have enough data about their credit and credit habits, it can be difficult to use this method to assess the credit repayment capacity of people without previous credit data. Additionally, applicants without a credit score may also face a high level of resistance when applying for a loan, as traditional loan approval processes do not conform well to the lack of credit data.

Other aspects that matter

While applicants’ credit scores are usually taken into account, that’s not all that matters. With improved access to several other data points and technological advancements to generate meaningful information from that data, credit scores are no longer required to estimate an individual’s creditworthiness. For customers who do not have a reliable data set on their credit history and habits, alternative data such as Account Aggregator (AA) data, financial etiquette, payment history utilities and bills, debt repayment patterns, consumption patterns and the like can be helpful. .

How can alternative data help?

Using alternative data is considered one of the best approaches for financial institutions and banks to take to make informed, data-driven lending decisions and gain a full understanding of their customers’ capacity and willingness. to meet their credit commitments. One of the main benefits of alternative data is that it provides insight into an individual’s financial management habits in several areas, outside of simple debt repayment habits. This can help lenders to go through the profiling process in a better and more efficient way and to better understand the creditworthiness of the applicant. Using alternative data also helps clients access credit and loans more easily, as it removes the barrier of requiring a credit score.

A step ahead with alternative data

Alternative data can open doors for exposure. Lenders can gain access to a more complete understanding of the credit risk associated with the consumer. This can be beneficial and helpful during the process of granting credit to consumers after their credit profile has been verified. Ultimately, alternative data helps increase lender confidence when it comes to extending credit to consumers who have no credit rating.

The author is CEO and co-founder of, the parent company of Algo360.

DISCLAIMER: Opinions expressed are those of the author and Outlook Money does not necessarily endorse them. Outlook Money will not be responsible for any damages caused to any person / organization directly or indirectly.

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