This is an interesting topic I keep stumbling across lately :)
Tons of new research is coming out on how to gauge the creditworthiness of people who don’t have credit scores or any other type of financial history – or even bank accounts for that matter (think, underprivileged countries) – however they all do have one major thing in common – smart phones.
So a group of startups and app developers are starting to pinpoint the key data points that would help lenders decide whether someone can be trusted to pay back a loan or not.
And as Shivani Siroya noted in her Ted talk I just watched last night (look at me go – watching smart people’s stuff!), this is huge for a number of reasons:
There are 2.5 billion people around the world that don’t have a credit score. That’s a third of the world’s population. They don’t have a score because there are no formal public records on them — no bank accounts, no credit histories and no social security numbers. And because they don’t have a score, they don’t have access to the credit or financial products that can improve their lives. They are not trusted.
What a great way to harness all this new technology, right? Using it for GOOD!
Good Risk vs Bad Risk Through Data Points
After watching that video, and then reading a similar article in the Wall Street Journal a little while back (where that graphic up top came from – crinkled up in my backpack waiting to be released one day!), I’ve compiled a handful of the more prominent findings here so you can see what they’ve uncovered.
Keep in mind these are just a few of the literally THOUSANDS of data points they’re collecting – but they’re some of the best ones. See where you fall :)
- Making more phone calls in the evenings than during the day – good risk. This indicates “price sensitivity” in that off-peak times are cheaper (keep in mind these are phone plans from international countries – not the U.S. where peak and off-peak seem to be going away).
- Sending more text messages than you’re receiving – bad risk! Data shows those who get more texts than they give out tend to be more creditworthy.
- Being a gambler – good risk!? Apparently gamblers are more likely to repay their loans – go figure. (Do people gamble on their phones?)
- Draining your battery faster – bad risk. ‘Cuz you’re goofing off too much on it? Or not organized enough to keep it charged?
- Consistently communicating with a few close contacts – good risk. Gives you a 4% bump in worthiness :)
- Having a pretty regular travel pattern – good risk. Data shows a 6% increase in repayment among customers who are consistent with where they spend most of their time. And I’d imagine if one of those places is “work” it’s even higher ;)
- Communicating with a variety of different people a day – good risk. People who interact with more than 58 different contacts tend to have stronger support networks – and thus be more likely to be good borrowers. Giving you a 9% boost in creditworthiness.
- Not paying your cell phone bill – BAD BAD BAD!!!! Haha… okay, so I made that one up ;) But for real – that’s gotta be in there somewhere, right? Or maybe everything’s pre-paid in those areas? (Actually, that’s probably right… if they have no credit history of course they don’t have bills, d’uh.)
So maybe it’s hard to compare your own data points with those in other countries, but if someone ever did task me on researching such things here in the U.S., here’s a list I’d provide them totally free of charge. And I wouldn’t need a phone to figure it out ;)
J. Money’s list of variables in determining creditworthiness:
- How much TV you watch every day
- If you know what the word “side hustle” means
- If you track your net worth
- If you read Budgets Are Sexy
- If you know who Dave Ramsey is
Credit Karma needs to appoint me their CEO ASAP :) And shameful plug as an ambassador* of theirs: they’re a great place to grab your credit score and report – for free. CreditKarma.com // end plug
All joking aside, these findings are HUGE to the billions of our world who have always believed there’s no hope for them within the financial industry.
I remember reading an article by Bill Gates once about how mobile banking is helping the poor transform their lives, and I feel like we tend to take it all for granted here. People would jump at the opportunity to improve their lives/businesses through access to capital, yet we over consume it to the point of being detrimental to our health, ugh… Could we just send them all our *excess* credit, please?
Anyways, just thought you might find this as interesting as I did :) I’m sure it’s only the beginning of what’s to come, which is AWESOME.
Here’s that Ted Talk again if you want to check it out – it’s only 8 mins:
And then if you’re still in the mood to talk credit (and want to laugh), head over to this video by comedian John Oliver who covers the surprising mistakes credit agencies make all day long here in the U.S.. A totally separate case of problems, of course, but problems that still affect us no less…
*I get compensated to be an ambassador for Credit Karma whose services I love and use personally
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!