July 20, 2023
The increasing adoption of digital financial services in Nigeria and Africa at large has seen the growth of the middle class and the need to improve access to credit for the underserved populations. Thus, the future of credit scoring is likely to see an increased use of alternative credit scoring methods such as using utility bills, rent payments and social media to establish creditworthiness for all and sundry.
This trend is driven by a number of factors, including a desire to improve access to credit for consumers who may not have a traditional credit history as well as a recognition that traditional credit scoring models may not be fully capturing an individual's creditworthiness.
Utility bills can be used to determine a credit score and creditworthiness through the use of alternative credit reporting agencies. These agencies collect payment data from utility companies and use this information to calculate credit scores and credit reports.
When a person pays their utility bills on time, this information is reported to the credit reporting agencies. The agencies use this information to create a credit report that shows a person's payment history. This payment history can be used to calculate a credit score, which is a numerical representation of a person's creditworthiness.
Rent payments can be used to determine a credit score in the future by reporting them to credit bureaus. Rent payments are typically not included in traditional credit reports, which focus on loans and credit cards. However, there are now services available that allow landlords to report rent payments to credit bureaus, such as Experian RentBureau and TransUnion Rental Screening Solutions.
Once rent payments are reported to credit bureaus, they can be included in credit reports and factored into credit scores. This can help individuals who do not have a traditional credit history, such as young adults or recent immigrants, establish credit and improve their credit scores.
When rent payments are reported to credit bureaus, they are typically treated similarly to other types of credit payments. The payment history, amount owed, and length of credit history are all factors that can impact a credit score. By consistently making on-time rent payments, individuals can demonstrate responsible financial behavior and potentially improve their credit scores over time.
It's important to note that not all landlords or property management companies report rent payments to credit bureaus. Therefore, it's important for renters to inquire about this option and make sure that their rent payments are being reported if they want to use them to improve their credit scores.
In the nearest future, social media and other online data maybe used to evaluate creditworthiness. For example, some lenders are already using data from social media accounts, such as LinkedIn, to assess a borrower's employment history and stability.
In conclusion, the future of credit scoring is likely to see a continued evolution towards more sophisticated and nuanced models that better capture an individual's creditworthiness.
For instance in Nigeria, the Central Bank of Nigeria (CBN) has introduced a credit reporting system, which allows lenders to access credit reports on borrowers from credit bureaus. This system has helped to improve the availability of credit information in Nigeria and has made it easier for lenders to assess credit risk.
It then means that credit scoring in Nigeria will continue to evolve, with a greater emphasis on data-driven models that incorporate alternative data sources and better capture an individual's creditworthiness. This will help to expand access to credit and promote financial inclusion in Nigeria.