Millions of Americans struggle with creditworthiness. Creditworthiness is the extent to which a person or company is considered suitable to receive financial credit, typically based on their reliability in paying money back in the past. Creditworthiness can be difficult to acquire due to a variety of factors including immigration status, age, or lack of access to lending. The way creditworthiness has been determined in the past is outdated and has little to no emphasis on a person’s actual income or spending patterns. The pandemic changed all of this.
In 2020, millions of people were unable to go to work and earn their traditional income. This increased the number of people who did not have access to affordable credit. Due to this financial crisis, the government, financial institutions, and fintechs stepped in to provide financial assistance. While this was helpful in the moment, it forever changed the meaning of credit data and scores. Now, financial institutions could not look back at past credit history to assess borrowers.
The pandemic has proven that we cannot go back to the old ways of lending. Now, we are seeing how much the methods of determining one’s creditworthiness left out certain segments of consumers. It is time to change how financial institutions evaluate creditworthiness. Not only will this benefit consumers, but it will also provide growth opportunities for financial institutions and further speed up the economic recovery.