A Comprehensive Guide on the Different Credit Scoring Models Out There!

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Hard money loans provide a valuable tool for confident real estate investors and projects requiring quick access to capital
Hard money loans provide a valuable tool for confident real estate investors and projects requiring quick access to capital

With the advancement in technology, credit scores have also improved. Credit scores are statistical tools that help to understand the borrower’s worthiness and whether there is a likelihood of default on a credit obligation.

Different credit bureaus use different types of models based on their consumers. These models take into account various factors such as payment details and pattern, credit utilization, type of credit account, recent credit inquiry, and length of credit history. All these factors sync into a formula that calculates the credit score.

Let’s learn about the different traditional and trending credit scoring models used.

Different types of credit scoring models used in South Africa: 

  • FICO score

FICO is the most employed credit scoring model in many continents, as it delivers a range of factors to estimate a credit score. The range is from 300 to 850, and the higher the score, the lower the risk of default.

  • VantageScore

This is a new credit scoring model designed by three primary credit bureaus. It uses multiple factors to compute the credit score, which ranges from 300 to 850. It is equivalent to FICO. Here, also, the higher the score, the lower the risk of default.

  • CreditXpert

CreditXpert is also a credit scoring model that helps lenders understand the risk of lending money to borrowers with limited credit histories.

  • TransRisk Score

It is a credit scoring model that utilizes alternative data sources, such as public and possessions records, to assist lenders in comprehending the creditworthiness of borrowers. Lenders in the automotive industry use it.

Notable trends and technology related to credit scoring 

  • Big data

Big data and machine learning algorithms analyze vast amounts of data and help identify patterns. These algorithms also include no credit check loans guaranteed approval South Africa to help consumers make informed decisions.

  • Alternative data

Utility bill payments or rental history are becoming more prevalent with alternating data sources. This helps lenders evaluate borrowers and improves access to credit for the underserved population.

  • Real-time scoring

Real-time scoring is essential to keep up with the up-to-date information. It helps assess the borrowers’ creditworthiness and allows them to make timely lending decisions. This is particularly useful in small businesses that need access to credit at any instant.

  • Mobile scoring

Lenders are also exploring mobile data options as mobile banking has grown. This helps evaluate creditworthiness and includes the borrower’s mobile phone usage pattern, such as the frequency of calls and texts, for a more detailed analysis.

  • Financial health scoring

Financial health scoring models are essential because they provide a holistic view of a body’s economic health. These models consider factors such as saving, investment, and the depth level to understand a creditor’s worthiness.

Summing it up

The credit risk scoring model is essential to help lenders understand the creditworthiness of a business or individual. This helps to know whether the borrower is financially unstable and may get into default. If no credit score is available, the lender might have to depend on a subjective judgment or personal opinion. Also, https://www.swiftbanker.co.za/ uses a centralized credit scoring model to ensure a fair and transparent lending process.

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