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With the ever-evolving landscape of financial technology, consumer lending has never been more accessible and efficient – in large part, due to fintech innovation. With a global consumer credit market size of $110 billion (in the UK, consumer lending reached reached over 28 billion British pounds in January 2023, which is a dramatic recovery from early in 2020), rapidly growing middle classes in emerging markets, and economic uncertainty affecting us all, the opportunity for lenders to tap into the consumer need for credit is immense.  

As predicted, the UK economy in particular is adapting as many experts feel a major recession has been avoided, and as a result, banks are expected to increase their lending this year. “Total loans in the UK are expected to rise 1.2% this year… with falling inflation, lower-than-anticipated energy bills and a resilient job market” contributing to an increase in the UK GDP, “driving an increase in consumer and business borrowing.”

When it comes to consumer lending specifically, fintechs are answering the call for increased borrowing demands and are looking to disrupt the traditional. No credit score? No problem. Worried about missing payments? You’re covered. From a company supporting gig workers around the world to a credit card for foodies, these ten global fintechs are shaking up auto lending, BNPL, credit cards, mortgages, and retail/POS. 

Lendbuzz – USA

If you’re new to credit, it can be difficult to get approved for auto financing. Lendbuzz is here to change that. The fintech proves a simple and fast application process that assesses creditworthiness with data beyond just your credit score. Working directly with auto dealerships, Lendbuzz offers personalized loans and instant decisions, taking you through the process from start to finish.

Moove – EMEA and India

Founded in Nigeria in 2020, Moove is a global startup that aims to democratize access to vehicle ownership for “mobility entrepreneurs” across Africa, the Middle East, Europe, and India. Tackling the high barrier to vehicle financing that millions face, especially in emerging markets, Moove uses a revenue-based financing model to offer car loans that drivers then pay off through their ridesharing app. 

ShopBack (formerly Hoolah) – Southeast Asia and Australia

Singapore-born ShopBack is a fintech that provides improved shopping experiences to consumers and broader reach and shopper engagement to brands and retailers. Operating across APAC, their integrated BNPL service allows you to pay off purchases in installments of three, which can be combined with features such as cashback and prepaid retail vouchers. ShopBack hopes to make shopping “more rewarding, delightful, and accessible.”

Nelo – Mexico

If you want to buy now, pay later at Mexico’s top merchants, you want to download Nelo’s top-rated app – it’s the first of its kind in the region, enabling shoppers to pay in installments with a virtual card generated at checkout. And through the company’s partnership with Mastercard, you can use it at any online merchant. You can also use it to finance everyday expenses like utilities and other bills, a mark of BNPL innovation and a sign of how the segment is likely to evolve.

Cred.ai, USA

Cred.ai is an AI-powered credit card designed to help users build credit while mitigating missed payments. The fintech sets up automated spending limits, helping you spend within your means, and their proprietary underwriting model means you don’t need a FICO score to apply. The card itself is metal, unicorn-themed, and free for approved applicants. It works best with their digital banking product and comes with features like an early paycheck (called flux capacitor) and digital “self-destruct” cards called stealthcards. 

Yonder, London

A rewards credit card “great for expats and immigrants,” Yonder is a rewards credit card that boasts no foreign exchange fees, worldwide travel insurance, and you can apply without a UK credit score. Leveraging open banking technology, the credit card is able to focus on financial inclusion while rewarding users for the experiences that enrich their lives, whether it’s travel or dining at Yonder’s curated restaurant partners around London.

Hypofriend, Germany

Hypofriend was founded to simplify and personalize the process of getting a mortgage for Germans. They use advanced technology to analyze your optimal finance strategy while predicting bank decisions in order to connect you to a personalized mortgage offer from a lender that fits your needs. The Hypofriend team is also there to advise from start to finish, demystifying the complex process and providing transparency to support more financial literacy and understanding.

HomeCrowd, Malaysia

Focused on helping Millennials in Malaysia achieve the dream of owning a home, HomeCrowd uses holistic, data-driven credit scoring to match mortgage applicants with peer-to-peer (P2P) lenders on a blockchain-powered, Web3 platform. The company is the first in the country to be licensed and regulated for P2P lending specifically for mortgages and consumer financing by the government. 

Blnk, Egypt

Did you know that less than 4% of Egyptians have access to credit cards? The majority of Egyptians must rely on savings or finance purchases with high-interest loans. Blnk is here to change that – they enable any consumer to receive instant credit at the point-of-sale. Their current network of merchants includes over 300 businesses and the fintech has already disbursed over $20 million in loans. 

Acima, USA

US-based Acima offers consumers lease-to-own solutions as an alternative to traditional retail financing. You don’t need credit to apply and your credit score isn’t affected. Simply lease the furniture, electronics, or any other item you want to purchase and “rent” it until the cost of the item is covered, or pay early at a discounted rate. If you no longer want the item, just return it! Acima enables online and in-store shopping and offers flexible payment terms.   

As access to consumer credit increases around the world, both fintechs and traditional financial service providers will need to leverage the right technology to provide it. The ten fintechs you just read about have found their innovative idea to disrupt consumer lending – what will yours be?

No matter the idea or use case, you need a technology partner that thinks like you. Future-proof your consumer lending strategy and launch new products with a data and decisioning ecosystem that manages risk, so you can focus on what matters most: serving your customers in new, disruptive ways. 

Read the eBook, The Secret to Consumer Lending Success, to discover how you can overcome any lending challenge with a robust credit risk decisioning platform that grants access to both alternative and traditional data sources through a single API.

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Credit scores and reports are essential components of financial services products. But do you know when credit scores were invented and how consumer credit reporting works? In this guide, we provide all the information you need to know about credit scores, including their history, and how they impact your financial life. Keep reading to learn more.

Credit scores as we know them today have only been around for a few decades. However, credit reporting itself began early in the 19th century, as commercial lenders attempted to ‘score’ potential business customers to determine the risk in providing credit to them. The very first credit reporting agencies (what we know now as companies like TransUnion and Equifax), began as local merchant associations. They simply collected various financial and identification information about potential borrowers and then sold it to lenders – but these were focused strictly on commercial/business loans at the start, offered to organizations that needed funding to launch or grow their operations. The earliest credit reporting agencies in the United States were R.G. Dun & Co and the Bradstreet Company (sidenote: sound familiar? The two companies merged in 1933 and rebranded as Dun & Bradstreet Inc. in 1939), which developed an alphanumeric scoring method to determine the risk factors associated with commercial loan applications.

In the early 20th century, modern credit bureaus were formed, looking more closely like we know them today. Taking a page out of the commercial-loans book, retailers began offering consumer credit to individuals. These retailers all had individual credit managers, tasked with determining creditworthiness of applicants. In 1912, they decided to band together and formed a national association to “develop a standard method for collecting, sharing and codifying information on retail debtors.”

In subsequent years, the three major credit bureaus in the U.S. were born – today known as Equifax, TransUnion, and Experian. Through the 70s and 80s they worked together to develop consistencies in credit reporting methods and pushed for an unbiased, more automated way of determining credit scores.

Credit Score Vs. Credit Report

But what IS a credit score? And how is it calculated? And what’s the difference between a credit score and a credit report?

A credit report comes first. A detailed historical record of your financial transactions and financial status, a credit report includes everything from identifying personal information (name, address, date of birth), to consumer credit accounts (credit cards, lines of credit, auto loans, mortgages), and ‘inquiry’ information (i.e., information on the companies who have pulled your credit report to make you offers of new credit products, or pre-approvals for upsells, etc.). A credit score is then calculated based on that information. Typically a three digit number (we’ll get into regional differences later), this credit score quickly tells potential lenders how creditworthy you are. In North America, the higher the score, the lower risk you are and therefore, a more worthy applicant.

Traditional credit scoring systems are not without fault, however. They often don’t take into consideration additional factors that can influence your credit risk level (i.e., most modern credit reports don’t include rental payments, which can be a very accurate predictor of someone’s propensity to pay back debt.) And there can be a significant lag between an applicant’s activities and pulling a credit report/score – real-time data is much more valuable (and accurate) in assessing an individual’s risk.

So how do credit scores really work? A mathematical formula based on the information found in your detailed credit report, a credit score allows potential lenders to instantly assess how creditworthy you are. A higher credit score indicates that a) you are more likely to pay off your debt/repay any credit provided and b) pay off that debt both on time, and according to the agreed-upon terms. With a more favorable credit score, you are more likely to have lenders extend you credit products, such as new credit cards, auto loans, mortgages, and consumer loans. Beyond that, the higher your credit score, the more likely it is that lenders will offer you better terms, including flexible repayment schedules and lower interest rates. If you are stuck carrying a low credit score, you run the risk of not being able to access credit when you need it or having to accept higher interest rates.

Calculating Your Credit Score

A FICO score (Fair, Issac and Company) is one of the most well-known credit scores in the US. In fact, “FICO scores are used by 90% of the top US lending institutions for their risk assessment needs.” These three-digit scores, which first began in 1989, are calculated based on the information found in your credit report from one of the three major credit bureaus. There are five main factors that FICO uses to calculate your credit score, with different categories carrying different weights. (Sidenote: other credit scores are calculated much the same way but may have different weights associated with the main contributing factors.)

For FICO scores, the factors are:

Credit Scoring Around the World

Despite the overwhelming prominence of the United States’ three main credit bureaus, there are regional differences in credit scoring models and the use of credit scores. While each region uses the same basic premise of evaluating an individual’s credit history to determine their creditworthiness, there are variations in how that credit scoring is executed. The main variations in credit scoring methods relate to:

Here’s a handful of examples of the ways various regions handle credit scoring:

How does credit scoring affect consumer lending?

A credit score that is rated as ‘good’ or ‘excellent’ will save most people thousands of dollars over the course of their lifetime. If you have excellent credit, you get better rates and payment terms on everything from mortgages and auto loans to credit cards and lines of credit – essentially anything that requires any sort of financing. If you have a better credit rating, you are seen as a lower-risk borrower, with more banks and lenders readily competing for your business by offering better rates, fees, and perks. On the flipside, those with poor credit ratings are seen as higher-risk borrowers, and may either have less favorable lending terms (higher interest rates in particular), or be unable to access credit at all when they need. Apart from just accessing lending products, those with poor credit scores may find it difficult to find rental housing, rent a car or even obtain life insurance.

Lenders use credit scores as part of their risk decisioning process to determine the creditworthiness of a potential individual or business customer. So, the ripple effect of either a positive or negative credit score is significant – and it can last an incredibly long time, particularly if there are delinquencies or defaults noted on your credit report.

However, part of the issue with this is that credit scoring can often have inherent biases. This greatly impacts various demographics from fairly accessing credit. For example, immigrant communities may not have formal credit histories. No credit history = low credit score. Low credit score means they can’t easily access lending products and therefore can’t start building a credit report/score. Or they are forced to accept suboptimal terms with exorbitantly high interest rates and may have difficultly paying down that debt as a result. Which of course, is a mark against you on your credit report.

Alternative Data for Financial Inclusion

The example above is not uncommon in our global society – there are countless immigrant populations in countries all over the world, and millions more who have no access to formal financial services products. There are many terms for those who lack a traditional credit history – thin-filed, credit invisible, unbanked, underbanked – but it essentially refers to anyone who doesn’t have information in their official credit history/report to generate a credit score. This includes an estimated 62 million Americans, 200 million people in Latin America and 3.6 million in Asia having no access to formal credit. One-third of all adults globally (up to 1.7 billion people) lack any type of bank account.

How can lenders ensure equal access to credit, even for those without formal credit histories, without sacrificing their risk strategy? One way is to use alternative data. Alternative data includes anything outside of a traditional credit report that may indicate creditworthiness, including telco information, rent and utilities payment info, social media and web presence, travel data and open banking info.

Because this type of data is often missing from traditional credit reports (and thus the formulation of credit scores), they can be inherently biased towards certain minority demographics. The data that FICO scores consider (like payment history, length of credit history, etc.) is also often influenced by generational wealth and the passing of large assets like homeownership (i.e., mortgage data counts towards your credit score, rental payment usually does not). “The Black homeownership rate was 44% at the end of 2020 compared to the 74.5% rate for non-Hispanic white consumers. Since credit scoring models look at homeowners’ housing payments and ignore renters’ rental payment history, Black consumers are at another disadvantage, despite both types of payments falling under the same category of “housing.” Ensuring that lenders are supplementing traditional credit scores with alternative data helps to overcome that bias and ensures financial inclusion.

Using alternative data helps to provide a more holistic view of the financial health (both current and future potential) of customers, improves decisioning accuracy and even helps increase fraud protection with improved identity verification and KYC onboarding processes. Enabling more accurate credit decisioning allows lenders to expand their market safely, without increasing risk, and helps to encourage access to all unbanked/thin-filed individuals, setting people on the path to safely building their credit scores. Eighty-seven percent of lenders using alternative data are using it to more accurately evaluate thin/no-file customers and 64% improve their risk assessment among unbanked consumers.

Apart from individual lenders looking to alternative data sources, some credit bureaus are now offering ways to boost credit scores for thin-filed consumers:

Also, read:

What is Banking as a Service?

How to improve your credit score

If you are struggling with a less than ideal credit score, don’t fret. There are steps you can take to improve your score over time:

It’s clear that credit reports and credit scores have a significant impact on your ability to access credit. But as the financial services industry evolves, there are more and more innovative ways to determine creditworthiness, including the integration of alternative data, implementation of advanced decisioning solutions, and using more accurate, predictive models with artificial intelligence. And there are now more varied opportunities to access credit and financial services products, including the advancement of buy now, pay later (BNPL) solutions, and neobanks and fintechs who are taking a fresh approach to credit products.

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