Credit Through the Ages: How Technology is Revolutionizing the Way We Assess Consumer Financial Behavior

May 2, 2018 Theresa Freas


Today, we’re seeing exploding volumes of data and staggering advances in analytics and technology. Financial institutions now have limitless opportunities to assess and predict consumer financial behavior. They’re using technology to inform credit decisioning, acquisition and account management strategies.

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Join Equifax  and Visual Capitalist  as we journey through time and explore the evolution of credit. In part one of our three-part infographic series, The History of Consumer Credit , we took a step back in time to the earliest days of consumer credit to better understand how the credit system has evolved over time. In part two of our infographic series, we now explore how big data and modern-day analytic techniques and machine learning are impacting credit decisioning. And in part three of our series, we will share a sneak peek into consumer credit decisioning, acquisition and account management strategies of tomorrow. Are you ready?

The Modern-Day Credit Landscape

Even though our modern-day system of credit got its start about 5,000 years ago, it’s helpful to review two foundational topics:

  • What is a consumer credit report? A consumer credit report is a summary of one’s credit history and payment history based on information provided by their lenders, creditors, and certain other organizations. Credit bureaus like Equifax collect and report this information to potential creditors, lenders and other companies, such as rental or insurance companies, who use it and other information to help determine an applicant’s credit worthiness. (Learn more about credit reports. )
  • What is a credit score? A credit score is a three-digit number designed to estimate a consumer’s ability to repay their debt obligations on time. Lenders will often consider a consumer’s credit report along with a credit score when deciding if a consumer poses a good credit risk. While credit scores vary based on the scoring model a lender chooses, a higher score usually correlates with a better risk profile, and thus better terms and offers. (Learn more about credit scores and how they are calculated. )

Big Data and Technology: Providing a More Accurate Estimation of Creditworthiness

Now that we’ve got the basics down, we can look under the hood of the credit scoring engine to understand how big data, analytics and machine learning are playing a bigger role in credit decisioning.

  • Big Data: Thanks to the internet and the digitization of nearly everything, lenders are no longer tied to traditional sources of credit data when assessing consumer credit risk. We now have access to alternative data  from telephone companies, mobile phone providers, alternative finance companies, utilities and the list goes on. These relatively new sources of data provide insights that can help drive more informed credit decisions. They also open the door to consumers who may not use traditional credit sources or have very limited traditional credit profiles (often referred to as “credit invisibles”).
  • Technology: While modelers have traditionally used logistic regression to calculate credit scores, we are now applying advanced analytics and machine learning techniques. Traditional credit scoring results in a snapshot of one’s credit profile at a given point in time, like taking a picture of your credit standing today. However, trending and analyzing data over a period of time reveals patterns that can predict a consumer’s future behavior — providing a new dimension of insight into the consumer’s financial profile. The predictive nature of trended data  (also called time series, historical or longitudinal data) helps strengthen analytics and model development, so companies can refine business strategies to more profitably grow their portfolio and better assess risk.

While today’s system of credit decisioning may seem largely unchanged throughout history, there are revolutionary advances in analytics and technology leading the way to improved credit decisioning. In part three of our infographic series, we’ll explore further advances in technology, including neural networks. We hope you’ll continue on this journey with us. Check back often as we continue to explore Credit Through the Ages.

To discuss the future of consumer credit with one of our experts, contact us now.

This is part two in a series of articles on the evolution of credit, based on a three-part infographics series with Visual Capitalist.





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