US banks will pilot lending to people without a credit rating

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Several major US banks, including JPMorgan Chase, have signed up to a government-backed pilot project using alternative data to lend to people with low or no credit ratings, according to the Wall Street Journal.

About 53 million American adults do not have regular credit scores, according to the ratings firm Fico. According to the CFPB, the problem disproportionately affects blacks and Hispanics.

A pilot project, scheduled for the end of this year, will assess the creditworthiness of about 10 banks based on user account balances and overdraft history. Magazine

To do this, members, including US Bank and Wells Fargo, will share data on customer deposits from checking and savings accounts. They could have done this through major creditors or the bank-owned firm behind Zelle, Early Warning Services.

In the future, aggregators such as Plaid and Finicity may be used to collect data from areas such as rent and utility bills.

Federal banking regulators in the United States announced back in 2019 that they support the use of alternative data, beyond traditional credit ratings, in determining creditworthiness.

In recent years, many nonbanks have tried to take advantage of this alternative data to improve traditional valuation methods and serve people usually frozen by large banks.

Petal is one of a number of startups that are shaking up the industry by creating patented technology that analyzes bank history – measuring creditworthiness based on income, expenses and savings.

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