By Sukanya Ganesh — Oct 18, 2023

🪪 AI-Powered Credit Scoring: A Smarter Way to Lend

In the world of lending, AI is a game-changer. It's redefining risk assessment, automating decisions, and tailoring loans to individuals.

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How AI is transforming Credit Scoring in Lending

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AI plays a significant role in credit scoring and lending by enhancing the accuracy, efficiency, and fairness of the lending process. The AI platform in lending market is estimated to garner a revenue of USD 90 Billion by the end of 2033 by growing at a CAGR of 25%.

Traditional Credit Scoring

Banks and credit card companies assess risk using credit scores, which consider factors like payment history and debt burden. Traditional methods, based on broad categories, can deny credit to deserving consumers and benefit those exploiting the system by taking multiple reward credit cards without being profitable for issuers.

Credit Scoring with AI

AI enhances credit scoring by analyzing diverse data, allowing personalized assessments based on income, employment, and credit history. This approach expands credit access to deserving individuals, including new graduates and foreign nationals. AI also adapts to identify unprofitable customers like credit card churners, ensuring more precise evaluations.

Here are some areas in which AI helps with credit scoring and lending:

Insurance Companies:

Insurance companies utilize AI credit scoring software to evaluate the risk associated with potential policyholders.
By utilizing a unique algorithm, insurance providers like Progressive Insurance can analyze an applicant’s credit history, driving record, and other relevant variables to establish their risk profile accurately. This enables the company to assign premiums that align with the individual’s level of risk and ensure fair pricing for their insurance coverage.

Rental Property Management:

This is an industry that has embraced the transformative power of AI credit scoring. Landlords and property managers are now utilizing AI credit scoring software to streamline their operations and make informed decisions when selecting tenants.
The rental property management space, Zumper, has harnessed the potential of AI credit scoring to support landlords and property managers in their tenant screening endeavors.
The platform takes pride in its system’s ability to process rental applications up to 10 times faster than traditional screening methods while maintaining a remarkable 95% accuracy rate in predicting tenants’ adherence to rent obligations.

E-Commerce:

In the realm of e-commerce, AI credit scoring software is finding valuable applications for assessing the creditworthiness of potential customers.
One notable example highlighting the efficacy of AI credit scoring software in the e-commerce industry involves the collaboration between Via Varejo, a prominent Brazilian retailer, and Zest AI.
By utilizing Zest AI’s cutting-edge software for credit scoring, Via Varejo was able to evaluate the creditworthiness of its customers more accurately.
The implementation of this technology resulted in a remarkable 15% increase in the approval rate of credit applications, while concurrently witnessing a notable 20% decrease in delinquency rates.

While AI offers many advantages in credit scoring and lending, it's essential to use these technologies responsibly and transparently. Ensuring data privacy, preventing bias and discrimination, and regularly auditing AI models are crucial steps in harnessing AI's potential for improving the lending process.