Although our FICO score defines us in many aspects of our lives, payday loan lenders have taken the demand for credit worthiness out of short-term, small-dollar loans by offering no-credit-check loans
While non-traditional payday lenders are among the few who don't look at your credit history before approving you, traditional lending institutions are moving further away from the "FICO score only" mentality and turning to other means of judging a consumer's credit worthiness.
Consumer information given to payday loan lenders for the use of applying for a loan includes the applicant's checking account, employment, and income information. Most lenders will ask the applicant to provide references, whether personal or professional. That minimal amount of information is all it takes to approve someone looking for a fast and temporary loan. A step up from that is an auto title loan lender who uses the collateral of the consumer's car in which to loan upon.
Due to a recession that has left millions of consumers in the position of losing their homes and jobs along with their credit rating, lenders are turning to non-traditional data in an effort to identify those consumer's who's FICO scores have taken a beating in the recession. Many of those people are normally good at handling their credit but have fallen victim to their circumstances.
Credit card issuers are looking to different ways to assess someone's credit worthiness including considering one's rent, utility, or cell phone payment history. With 15 million consumers having their credit scores affected negatively as a result of the recession, a traditional credit score may not evaluate the state of their credit worthiness now that they have moved on.
Many consumers have sold their high mortgage homes or found new jobs which may make them good candidates for credit issuance. Finding a way to assess an alternative credit score will help credit issuers as well as debtors.
Unfortunately, rating a person's borrowing potential in this way is not as reliable as a FICO score may be. Gathering information this way may not be as consistent and may not take into account complex circumstances. This could do more harm than help. Looking at rental history is dependent on a landlord reporting consistently. Considering utility payment history may hinder some low-income consumers who struggle to pay their utilities when the weather is extreme. If late payments are reported, this could adversely affect their credit.
Looking at alternative ways to determine whether or not someone is a good candidate for a credit card may end up pushing out the concept of a FICO score altogether. If creditors can look beyond a person's past mistakes and more to what they have to offer aside from their circumstances, they can have a clearer picture of who the cardholder is.
While payday loan lenders offer loans to those with good, bad, little or not credit at all, credit card companies can look to a new way to boost their business while continuing to take a more selective approach to approving someone.