Whether your bank is involved in active outreach or you are keenly aware of the challenges of new customers, there’s one thing every bank that deals with the previously unbanked has to deal with: Credit Scoring. In our financial industry, almost nothing important can occur without first knowing someone’s credit score. A credit score is one’s financial reputation made up of all the financial decisions you’ve made over the last several years. You can raise or lower it with good or bad decisions, but it’s impossible to conjure one out of thin air.
In banked populations, parents get their children their first bank account and small-balance credit card in high school, sometimes sooner. But in unbanked populations and especially with immigrants who could not bring all the relevant documentation with them, credit scores must be determined by alternate means. Today, we’re here to take a quick and clear look at the primary ways to credit-score a new customer who does not have a functional past history of banking and – therefore – no credit history for you to work with.
International Credit History
The first thing you could do is see if your client has an international credit history in their home country or elsewhere. One of the major disadvantages for immigrants and refugees is that their good existing credit histories do not translate well into the American credit system. But services like Nova, CreditStacks, and eCredable are offering a way to research the international credit history of your customers to help build a real snapshot of their earning and spending habits.
Income and Job Consistency
Of course, if you really have nothing to start with, you’ll need to think about building your customer’s financial reputation from scratch. The best way to start this is by looking at the client’s job and consistency holding a job. While looking at income is obvious and banks do it all the time, you also want to take a look at your new client’s job history. Find out how long they’ve been at their current job and if they were stable or a job-hopper before this point Someone who is consistent at work is also more likely to be consistent with their finances. And their income is more likely to remain steady over the next several years.
Bill Payment Reliability
You can also look at how well your client has been paying their bills. Many underbanked families are incredibly reliable about paying their bills in cash on time every month. You may be able to check your client’s phone bills, or home utility bills to get a good idea of who you’re dealing with. Reliable bill payments is the same whether they are paid in cash or through a credit or debit card. It means that someone is reliable and responsible with their money. In fact, even a few missed payments prioritised smartly during lean times might be a good sign overall.
Low-Balance Credit Cards
Then there are the methods to help your unbanked clients make the transition to ‘banked’ by helping them to build a true credit score. The way to get started is how most young people get started, with low-balance credit cards. A credit card with $100 balance isn’t going to blow the bank or lose you much if the occasional person defaults. But it can help unbanked and under-banked families make it from one month to the next and start to build up a real credit score. As long as they pay off the card responsibly, then offering low-balance credit is the perfect way to help unbanked new clients get on the charts.
Finally, there are micro-loans. Banks that offer micro-loans to unbanked customers are doing a favour to society as a whole. Because you are taking the place of payday loan sharks who take advantage of people in bad credit situations. Micro-loans tide families over hard months so they can pay their bills and buy groceries. And hard-working responsible people will pay them back with dedication. The more you can help unbanked populations build their credit with low-balance cards and micro-loans, the better off everyone who wants to be financially independent will be.
If you are dealing with even a small number of new and previously unbanked customers, there are many options to determine how financially reliable someone is when they don’t have a current history. In fact, we’ve only covered the basics. Modern technology also offers a variety of smart options like AI-assisted analysis of online accounts or in-depth examinations of their buying habits.
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