It’s Not Just Your Credit Score Anymore—New Practices in Lending

It’s Not Just Your Credit Score Anymore—New Practices in Lending

Just when you thought you had all your financial bases covered, finally working on that credit score and cleaning up your credit report, bankers are pulling a fast one.

If you've been staying on top of your credit score in preparation to apply for a loan or credit, bravo! You're doing your due diligence to ensure you get the best offers and lowest rates. However, nowadays it's no longer just your credit score that you need to stay on top of. More and more issuers and lenders are checking up on other aspects of our financial record and standing to assess whether or not to extend credit to you.

Before it catches you off-guard, take a look at this checklist of which details of your financial behavior, as reported by The Wall Street Journal, could end up helping or hurting you in the credit game.

Your Paycheck and Bank Account

Assets such as your home and cars may soon become part of lenders' assessment of your financial risk. One bureau, Equifax, already offers an estimate of liquid wealth as part of the financial information available to bankers and lenders. Also, peeking at your income is becoming more and more common with credit card issuers looking to make sure you can pay your debts. An estimation of your income, based on your credit history, is used by issuers to help determine pre-approved offers and whether to extend your credit.

Banks are also using their financial insights on consumers, such as balances, deposits, and withdrawal activity, as an indicator of credit risk. Fair Isaac, the company that markets the FICO score, even developed bank behavior-based scores to assess banking customers' risk as well as to target consumers for other financial services (such as rewards programs to incentivize more deposits).

Seeing the bigger picture of a consumer's financial profile, including all major assets and banking habits, gives financial institutions more information to zero in on potential customers and calculate credit risk in a whole new way.

Your Living Situation

Your financial fitness in regards to your rent or home value is becoming an assessment of your creditworthiness. Because many consumers have too little credit history for lenders to accurately generate a credit score, credit bureaus may begin taking into account rent payments, utility bills, and possibly even cell phone bills to determine creditworthiness. For example, the credit bureau Experian bought a rental-payment collecting agency, and plans to integrate that information into consumer credit records. For consumers with a thin file of credit or short history, you're in luck; if you are on top of your payments, this can work out beneficially to get better rates and garner financial offers you couldn't access otherwise due to little credit.

Lenders have also resorted to using home values as a factor in credit-based lending decisions, especially since the shaky housing market has caused falling home values and high rates of foreclosure. For those who own a home, this could help polish up your creditworthiness.

Your Debt

Have outstanding debts? Debt collection agencies may start pursuing you more persistently. Credit bureaus can send daily reports to debt collection agencies if new information changes a debtor's financial status, such as a drop in debt, reduced debt, or new employment. If your financial status improves, like decreased credit use, it could signal to collection agencies that you are in a better capacity to repay other debts.

The Bottom Line

Lenders and bankers will continue to come up with new ways to check on your financial standing and better assess your credit health. An important part of staying ahead of creditors looking to sniff you out is to continue to monitor and better your credit score, looking out for any major changes or drops.

Today, staying one step ahead in the credit game also means being conscientious and diligent of all aspects of your financial life—your home, bill payments, banking, and more. This is proof of something we've always firmly believed—that bettering your credit score is not just a one-step action, but a lifestyle of better money management and financial behavior.

Tell us in the comments: How do you keep an eye on your credit score?


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