Due Diligence. Smart ways to evaluate your credit score

Your credit score is your passport to getting a loan. However, given that the largest credit database in India has only 300 million records, if you are one of the many borrowers without a credit record or have a thin file, your chances of getting a loan are slim.

But now, lending institutions are looking at ways to evaluate credit worthiness from other sources.

If a borrower does not have a formal credit score, lenders are now beginning to assess the credit worthiness based on digital data derived from multiple sources.

Many of the new credit information service providers use information from bank statements, mobile data, online transactions data and social media information to assess your credit worthiness.

For example, location services (GPS) on mobile phones can be used to establish address and place of work, based on where a person is during the day and night.

SMS mining can also be used to know the transactions in one’s accounts and to establish patterns. Bank transaction details based on SMS logs can provide information on bills paid and salary credits.

Purchase and returns records from e-commerce sites and wallets also provide a wealth of data to analyse. Utility bill payments on time can be seen as a proxy to credit performance.

Social media profiling is also widely used. For example, a LinkedIn profile can be used to validate place of work and establish identity.

An account that has been active for over six months and with, say, 50 connections which includes people from the stated place of work, provides confidence on employment data; even a payslip is not needed.

Likewise, Facebook posts and comments are used to assess a person’s connections and get an insight into the spending and saving attitudes.

For instance, a lot of interest in gadget purchases or holidays, gauged by posts on latest models of phones or trip pictures, may indicate a high desire to spend. Lenders can use other information at their disposal — such as earning potential, and average balance — to draw meaningful conclusions.

Mobile data is also very useful, according to Alok Mittal, co-founder, Indifi Technologies, a credit provider to small enterprises. Prepaid recharge behaviour of the customer can indicate regularity and discipline.

Too many un-returned missed calls from people in someone's address book may indicate reluctance to answer those phone calls — a cause for alarm.

However, even with access to new information, credit evaluation using secondary information is at its nascent stage and there is no pre-defined formula. For instance, the weights given to different parameters may differ for someone in a tier-1 city vis-a-vis tier-2 location, says Ranjit Punja, CEO of Creditmantri, a credit evaluation and advisory service.

You can now get a score even without a record, says Manavjeet Singh, CEO of Rubique.com , a loan marketplace. Credit bureaus have started assigning a generic score to individuals with no credit history.

Many NBFCs are also willing to provide loans to individuals without a credit score.

Banks may be willing to provide loans to this segment if the salary account of the individual is maintained with the bank for a certain minimum period of time.

Also, you can get secured loans — home and loans — from lenders without a credit history. With growth in peer-to-peer lending, many individuals and HNIs are open to giving loans based on new data.

While alternative credit scoring is making a start in India, for starters, be aware that lenders are looking at more than one source to find out information about your repayment capacity and willingness.

It helps if you have a good track record in payments, such as utility bills. You must also think about establishing your identity and credentials through your social media network.

Still, you must work on building your credit history through regular payment of credit card or other secured loan dues. A good credit history can help you get higher amount of loan at favourable rates.

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