As more lenders become involved in the credit industry and give access to cash for people and businesses, the traditional approval model for lending is changing. Which raises the question, is credit score becoming less important?
First, a model of measuring the ability of a person or business to repay their debts makes sense and necessary for a society to have a credit marketplace. Otherwise, no one would lend money without feeling secure that the borrower intends to pay that money back.
Currently, FICO score has been the dominated metric to measure credit worthiness in the US. Alternative lending companies are less focused on credit score as they are tracking employment history and monthly expenses, and even phone usage data.
Also, a lot of lending companies are willing to overlook bad credit or bad payment history if you are willing to use a collateral to receive your loan, such as car, real estate, or if you are business, accounts receivables.
The answer to the question though becomes obvious when you look at the bigger picture. Many of these new companies that forego credit scores are not equipped to help with a variety of situations, like receiving a cash advance fast if you have an upcoming bill to pay, or you are a business looking to take a line of credit. As those lenders still value the credit score metric, and that score will determine not only your approval to the funds, but also how expensive it is by the interest rate.
There is a reason why, nationally, the FICO Score is at the highest it has been in at least a decade, according to a 2015 New York Times article. It is important to value that score and to pay back the debt timely and in full to allow you to have access for cash and credit in the future….because it is almost certain that future will still use the credit score.
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