Banks Using New Tool To Assess Credit Score For These Customers: How It Works?

TransUnion Cibil has developed an eligibility score for potential credit customers who have no formal credit history.

TransUnion Cibil has developed an eligibility score for potential credit customers who have no experience carrying debt or using credit cards.

The country’s oldest credit assessment firm is looking to tap into the market of under 40 years of age demographic who have no formal credit history.

An Emerging Borrower Class

These people have never taken out loans nor have they extensively used credit cards, yet are on the lookout for loans. 

This new to credit (NTC) group was traditionally difficult to assess given their lack of formal credit history. 

However, they are also the fastest growing group of borrowers which banks want to tap into despite wariness about their default probability. 

The New Scoring Model

The new assessment or scoring model is called CreditVision which will make use of an algorithm to consistently monitor subjects. 

The algorithm will pick up on behavioral trends and capture any shifts, thereby helping lenders determine the risk level of young borrowers who are open to taking on debt. 

CreditVision score range is from 101 to 200. The higher the value, lower is the credit risk or default probability of the borrower. 

The model will be accessible only by credit institutions and banks. 

Growing From Credit-Inexperienced To ‘Prime Consumers’

In an official statement, the firm has said that in the past 20 years the opening of 8.10 crore loan accounts of first-time borrowers was facilitated with its insights and solutions.

Analysis by the company has determined that NTC customers tend to be reliable and low risk. 

When they are given credit opportunities, they are able to build a higher credit score. 

72.30% of NTC consumers granted credit in Jan 2019 leveled up to become prime-consumers i.e. having a score of 700 and above, in Jan 2020.

Features Of The New And Young Indian Borrower

Analyses also found that in the 2-year period between Jan 2019 and Jan 2021, most NTC customers sought loans for 2-wheelers, consumer durables and home loans.

Rajesh Kumar, CEO TransUnion Cibil, said that most of the Indian population is under 40 years of age and this cohort is also most likely to fall under the NTC bracket. 

If this group is supported in terms of credit opportunities, they can turn out to be good borrowers and can develop into “a profitable customer base for credit institutions”, Kumar concluded.

Presently 24% of loan enquiries are made by NTC individuals hailing from rural and semi urban areas. 

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