You are Your Credit Score

The moment you place credit request to a bank for education loan or home loan, the bank ONLY sees your credit score. You may say the bank is quite a ‘numberist’. (Like racists judge people based on their race, banks judge people based on their credit score hence they are ‘numberists’. Sorry if you didn’t like the joke!)

Credit score is meant to reflect your creditworthiness and risk of default.

Higher the credit score, the more creditworthy you are.

Who calculates it? And how is it calculated?

Your payment track record and previous borrowing history make your credit score. Most of the retail banks rely on this algorithm.

But this algorithm is highly flawed!

Consider the situation —

A young person, like you, has absolutely no credit history but a great reputation. You may have a history of fulfilling all your commitments, whether in school or college. Or you may even have extremely rich parents. All these factors mentioned are presently NOT taken into account while calculating the credit score. Hence, the algorithm is highly flawed.

Companies like PayPal and PayTM can calculate your credit score in seconds based on your purchasing from Amazon, or paying mobile bills etc. And the data used by these FinTech companies is absolutely relevant and not outdated.

Reputation is something every human being has in this society. People who live right according to the norms set by the society have higher reputation than those who don’t. To date, reputation has not been used as a factor to establish trust between financial bodies and individuals. If a small farmer in India wants a loan from the bank to purchase a tractor for his field, then the bank official will narrow down the entire processing to his Social Number, Credit Score, his income, place of residence. A person is much more than that! Since the farmer is not very well included in the economy, he’d be denied by the bank to get a loan despite the fact that the farmer had always paid back the amount to the people he earlier borrowed from like small money lenders.

Inclusion happens only when people use power to bring people in, not to keep people out!

Recently, The Royal Bank of Canada is interested in putting credit scores on a blockchain. In a patent application released Thursday, the bank outlines a platform built on a blockchain that would automatically generate credit ratings using a borrower’s historical and predictive data. The application as described proposes a system that would utilize more data sources than existing credit rating systems, improving the loan process while creating an immutable record.

A company named Bloom makes the concept of credit score very exciting! Bloom Protocol: Decentralized credit scoring powered by Ethereum and IPFS.

Bloom is a protocol for assessing credit risk through federated attestation-based identity verification and the creation of a network of peer-to-peer and organizational creditworthiness vouching (“credit staking”).

Bloom’s mission is to build a robust global credit infrastructure that reduces fees, increases accessibility to credit, and makes credit scoring fair. Bloom is exciting because access to credit is life-changing, but the existing credit system is woefully inadequate for such an important function. Borrowers must expose all of their personal information when applying for a loan — the same info an attacker can use to open new lines of credit.

BloomScore credit scores are global, allowing individuals to carry their scores across countries. Lenders will be able to extend credit to millions of creditworthy individuals who are currently denied access. This is step one towards financial inclusion.

India has second-largest unbanked population in the world - Times of India_While India is quite proud about adding more individuals into the formal banking system -- the number of adults with…_timesofindia.indiatimes.com

2 billion people worldwide are unbanked - here's how to change this_To expand worldwide financial inclusion, maybe we should look to sub-Saharan Africa for inspiration._www.weforum.org

With financial services seeing an all time high innovation in the 21st century, it is almost as good as God’s own plan to include people who are denied financial services in the economy by using decentralised technology which is purely autonomous and no government or organisation or individual can control.

It’s time for democracy. It’s time for revolution!