Should borrowers be denied new loans because they didn’t finish college?
That sort of question is vexing policy makers as they seek to encourage lenders to use new types of data and computer-driven models to allow more borrowers to qualify for loans, and at lower prices.
Such efforts seek to address mounting criticism of an existing credit-evaluation system that relies on past loan-repayment history but also raises questions about fairness and accessibility to credit, The Wall Street Journal reports.
Several bills have been introduced in the House of Representatives this year by lawmakers from both parties to improve the credit-scoring system. Last month, a bipartisan House financial-technology task force held a hearing on the use of alternative data.
Rep. French Hill (R-Arkansas), the task force’s top Republican, said alternative credit criteria has “the potential to widen the universe of borrowers and provide greater access to affordable credit.” Citing a report by credit-reporting company TransUnion, Mr. Hill said two in three lenders were able to lend to more borrowers with the use of alternative data.
Sen. Kamala Harris (D-California), a Democratic presidential candidate, has proposed including on-time rent payments and cellphone bills in credit scores as part of her campaign pledge to boost black homeownership.
Some financial-technology companies are already using these techniques. At Upstart Network Inc., an online lender founded by former Google Inc. employees, loan applicants are asked to provide the highest education degree obtained, the names of university or colleges attended and areas of study, as well as employment history.
Other lenders are also using educational history or employment status to screen borrowers, with similar results, along with more widely accepted data such as rent and utility payments and cash-flow records from borrowers’ bank statements. Read the full story.