As we’ve discussed on the blog before, the finance industry is ripe for disruption. There are countless ways that the banking experience can be modified to make it easier and more accessible to users. One of the most contested elements of the finance industry is the credit score. Major banks are teaming up, with government backing, to hopefully switch up the credit score status quo.
JPMorgan, Wells Fargo, and US Bancorp are coming together to share information in hopes of creating a more equitable credit scoring process. Historically, credit was determined by your borrowing history in the US – i.e. on-time payments, credit to usage ratio, etc. So you basically have to have credit to built credit. It’s been criticized for being like a game, And consumers who only pay with cash or credit could have a low or non-existent credit score despite having stellar financial habits. Almost 53 million adult US citizens don’t have credit cards.
So these banks are hoping that they can use this shared customer information as an alternative way of measuring financial responsibility. They will exchange information like balances over time and overdraft history.
The future of banking?
For now this information will allow them to extend credit card lines to a range of people who traditionally lacked the opportunity to borrow. But these banks are hoping that they could also eventually use this criteria to extend other lines of credit like auto loans or mortgages.
Over the past decade, institutions have been increasingly held accountable for their contribution towards inequality. With financial services being one of the most insidious contributors, the pressure is on. This program, expected to launch this year, will hopefully combat some of this inequality. This seems like a great step in the right direction to hear customer and societal complaints and put it into action.
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Hannah Michelle Lambert is the Digital Marketer at Worthix, as well as the host of the monthly CX News Recap segment. She is a graduate of the University of Michigan.