The financial crisis may be behind us but bankers and other lenders are still anxious when it comes to handing out loans. These days, you need more than a great FICO score to impress them. Banks are looking beyond your credit score into other areas of your financial life to make sure you are a good risk before approving a loan.
According to the Wall Street Journal, here are some newer ways lenders and financial-services companies are sizing up your financial behavior and credit-worthiness:
Bank-depositor behavior scores. Fair Isaac, the creator of the widely used FICO credit score, is marketing bank-depositor behavior scores, which are used by banks to assess their own customers. The scores are based on balances, deposit records and withdrawal activity. Unlike credit scores " which are most affected after payments are late or credit is maxed out " behavior scores can be a leading indicator of credit risk. They also can help banks identify customers who might need special attention because their direct deposits had stopped.
Income estimation. This business took off earlier this year after the Federal Reserve allowed lenders to use credit bureaus' income estimates to satisfy new requirements that credit-card applicants show the ability to pay their debts. The bureaus use credit-record information, such as the size of your credit lines and the age and size of your mortgage, and plug it into models to predict your earnings. Those estimates also may be used to double-check the income you report on credit applications or to determine if you should be preapproved for credit. You can't see those estimates. But if you are denied credit because of them, you must be given a chance to provide additional information.
Rent payments. An estimated 40 million consumers, including young people and people who prefer to pay in cash, have too little credit experience to generate a useful credit score. But they are likely to pay rent or utility bills, which could help credit bureaus assess their credit-worthiness better.
Credit bureaus say they also would like to offer data on cellphone payments, but have run into concerns over privacy issues, which may require legislation to untangle.
Collection triggers. Credit bureaus can now send daily reports to collection companies when a debtor's financial status changes. For example, if new employment information appears or if a debt starts to decline, a drop in credit use would indicate that the consumer has more capacity to pay and a better chance of repaying other outstanding debts.
Home values. As home values have plummeted and foreclosures have soared in many states, lenders of all stripes have become more cautious. Using home values as a factor in credit decisions doesn't appear to be widespread.
Your wealth. Information about your assets other than homes and cars, which aren't part of the credit record, may soon play a bigger role in your financial life. With a better sense of a consumer's balance sheet, lenders might be able to target potential customers better and also have a fuller sense of their likely risk. Equifax, another of the big three credit bureaus, offers financial-service providers an estimate of liquid wealth as part of a financial "suite" of information.
As all of this becomes a widespread practice, those who are prompt and careful in all aspects of their financial life may have more options " and those who have been sloppy with, say, their bank accounts may be penalized for that.
