Most banks won't touch these kind of loans because they're high-risk, but like On Deck Capital (which is attempting to streamline the lending process for small businesses), LendUp uses Big Data to do instant risk analysis and evaluate creditworthiness, weeding out those who have bad credit for a reason from those who may have become victims of the system.
Earlier this year, Accion President and CEO Michael Schlein and Board Chairman Diana Taylor wrote in Forbes about DemystData, a company that uses big data to evaluate creditworthiness.
Back then, he says, Fingerhut evaluated creditworthiness based in part on how people filled out order forms.
Moody's, which appears to be farthest along in its plans, is hiring 10 people whose job will be to assist the company's analysts in evaluating creditworthiness, starting with companies that carry large amounts of debt or that have potential accounting issues already identified by the agency, Mr. Jonas said.
But on the back end, Affirm has built a new method of evaluating creditworthiness and lending risk that goes well beyond your typical FICO score and could lead to many more financing approvals while also lowering the amount of money consumers pay in interest when financing purchases.
Institutions provide the data under agreement with the bureaus, in exchange for access to credit files so they can evaluate the creditworthiness of applicants.
As a result, the bureau concluded, consumers shouldn't rely exclusively on those scores to gauge how a lender would evaluate their creditworthiness.
Most often, that means your FICO score — the score developed by the company of the same name to help lenders evaluate the creditworthiness of a potential borrower.
Much as the sovereign-wealth funds and pension giants of the world would like to earn higher returns, they do not have the capacity to evaluate the creditworthiness of the businesses that might provide them.
Standard & Poor's, Moody's and Fitch Ratings, which evaluate the creditworthiness of the vast majority of companies with publicly traded debt, say that in coming months they plan to give much more attention to analysis of accounting policies and practices in their reports on corporate borrowers.
"Why is the score I get here not the same as what they get there?" That issue is currently under review by the Consumer Financial Protection Bureau, because consumers may pay for a credit score from various consumer Web sites but get a generic FICO or other score, which may differ from the actual score a lender is using to evaluate their creditworthiness.
