The credit scoring industry is about to undergo some massive changes. This will have an impact on all of us and depending on which side you are on - this could be very positive for you as the consumer.
It all starts with the latest news from Transunion, one of South Africa's biggest credit bureaus.
They recently announced their latest scoring model called CreditVision. This is what they had to say about it:
"It will help consumers build financial security by getting access to responsible credit, while giving credit providers deeper insights into the risk behaviour of previously invisible and thin file segments of the population,"
Okay, so this might sound very confusing to a lot of you so let me break it down into a language all of us can understand.
If you don't have any credit accounts, then there is not enough data to compile a credit score for you.
At My Credit Status we see this problem daily. Lots of people earn a lot more than they spend, but the fact that they don’t have any accounts or any credit history, causes them to receive a 0 credit score which is also called a thin file.
Now. Because of this problem, there are even companies charging you a fee to send your repayment data to the credit bureaus so that you can build up a credit history. In my opinion, this is unethical, and to me, this is companies leeching off the broken links in our current credit scoring model.
So back to the scoring model. This new way of scoring a person will change the dynamics and in my opinion, is a more fair approach to consumers. We should uplift our society and not incentivize the public to make more debt to build a credit history. I welcome this change and think this is a step in the right direction.
So now you might wonder, what will they be scoring you on then?
Well, according to Transunion, “One way CreditVision Link analyses consumers is by examining data such as property information, commercial links, family construct, and where they live.”
This statement is very vague, but my understanding of it is - they will be looking at your rental payments if you own property or not. They will be looking at the more extensive data such as the risk of the area you live in, the average credit score of the population in your area, and then through algorithms, assign a specific value to you based on this along with some general information such as age, gender, and marital status.
Here are my thoughts on Transunion’s product. I think it’s great that they developed such a product since it solves a massive problem in the current scoring model. I highly welcome it and business-wise, I believe they will be very competitive as a bureau if this proves to be effective.
So what about the other bureaus in South Africa then?
As you know, My Credit Status, gets its data from Experian at the time of recording this video. I have personally reached out to them to get their take on things and as it turns out, there are big changes in the pipeline for them as well, which will result in a more fair scoring model to the average consumer.
As for Compuscan - they are owned by Experian, so they will be using the same model. The last bureau is XDS - I don’t know,, but I can only assume that if they want to remain one of the biggest bureaus in South Africa, they will have to come up with something of their own to stay competitive in this space.
Overall I think it's clear that the credit bureaus have seen the current problem in their scoring models, and are actively looking at changing this. I highly welcome this change as it will not be incentivising consumers to make debt just to build a credit history.
Now, what are my predictions for credit scores? In the future, as more data becomes available to these bureaus, I think the scoring models will change drastically to include items such as your daily behaviour, income, day-to-day spending habits, and social interaction online. In some countries,, they are already developing a social score system that I think will eventually form part of the credit scoring model.
In the USA, the new Biden administration is having talks of completely removing the biggest credit bureaus and introducing a new credit score model that will include all the previously said factors as well.
Only time will tell, though, but I think that 5G could be the catalyst to make all of this happen a lot faster.
