What alternatives are there to a credit score?

When you apply for a credit card or a loan, your new creditor will look at your credit score to assess your creditworthiness.

However, is this the only indicator they can consider? We have a look at why creditors consider credit scores, and we look at alternatives to these.

Tip: You can get your free credit score today by signing up with CreditSav.

Creditors usually consider your credit score for risk

Sebastien Alexanderson, CEO of National Debt Advisors, says that if you’re a registered credit provider, you are in charge of making informed decisions about who you can lend money to.

He explains that creditors need to decide what attitude or risk their company is willing to take when considering a new client. There are numerous factors they will consider. 

“One of the largest considerations is the prospective customers’ previous financial history – or lack thereof – which is used to calculate the risk of lending to them,” says Alexanderson.

“This information is held by credit bureaus, such as Experian and TransUnion, for the very purpose of aiding credit providers to make accurate and informed decisions,” he adds.  

Alexanderson explains that if a credit provider doesn’t look at their clients’ credit scores, then they may be exposing themselves to unnecessary risk, as well as possibly lending money recklessly.

READ MORE: Can you go through life with a credit score of zero?

Are there alternatives to credit scores?

In some cases, people have a credit score of zero because they have never engaged with credit products. This means that they appear to be high-risk clients, even if their finances are otherwise healthy.

“There are several alternatives being tested around the world to try to give access to credit to those who have lived without credit all their lives,” says Alexanderson.

“Examples include facial recognition, and psychometric testing which uses AI to measure truth, fear, sadness, and previous user data, to predict your likelihood of overall repayment. But this remains in testing mode and it’s not available in South Africa,” he explains. 

In future, these models may become available and, when they do, those who don’t have a credit score will have a different option to make use of.

You can check your credit score for free through CreditSav. Sign up today and have lifetime access.