Utilizing artificial intelligence in credit scoring enables lending organizations to enhance their competitiveness in the modern market. AI-powered platforms, including the digital scoring system RiskSeal, allow for a more precise, rapid, and efficient assessment of potential borrowers.
ResearchNester forecasts that the market for AI-based lending solutions is expected to demonstrate a CAGR of 25% over the next nine years, reaching a size of $90 billion by 2033.
This trend is explained by the fact that lenders have recognized all the benefits of using this innovative technology and have begun to incorporate it into their processes on a large scale.
Traditional Scoring Models vs AI Credit Scores
The traditional method of assessing the creditworthiness of potential borrowers is based on analyzing their credit history. This involves considering their repayment history on loans, types of debt obligations, duration of using banking services, and so on.
However, traditional scoring faces a significant problem. According to the World Bank, 1.4 billion people worldwide are unbanked, meaning they lack access to basic financial instruments such as bank accounts, deposits, insurance, etc. Consequently, it is impossible for these consumers to obtain credit through traditional means due to their lack of a credit history.
Alternative credit scoring based on artificial intelligence is advisable for assessing the unbanked population. This method can help analyze non-traditional data, such as information from mobile operators, digital footprints of borrowers, rental payment history, etc.
AI Technologies Used in Credit Scoring
Modern digital solutions for credit scoring are developed using several artificial intelligence technologies. These include:
Machine Learning (ML)
Machine learning algorithms play a significant role in credit scoring. They can be trained on historical data and use this information to identify patterns and build predictive models. These predictive models are then used to assess the creditworthiness of potential borrowers.
Natural Language Processing (NLP)
This technology allows for the recognition and interpretation of human speech. This capability allows scoring systems to extract important information from unstructured data sources, including financial reports, payment documents, etc.
NLP is used to automate the analysis of various alternative data, significantly speeding up the process and eliminating the likelihood of human errors.
Computer Vision (CV)
One of the checks modern platforms offer in credit scoring is face match. This method involves comparing multiple photos of an applicant and determining the similarity between them.
Based on the calculations, a conclusion is drawn about whether the same person is depicted in them. Computer vision—a technology that enables machines to understand visual information by mimicking human vision—is applied for this purpose.
AI Capabilities in Credit Scoring
Artificial intelligence performs numerous tasks in the process of assessing the creditworthiness of applicants. Among its capabilities are:
Data integration from various sources. AI-based systems can easily integrate data obtained from different sources, including alternative ones. Such platforms can gather data on social media activity, online consumer purchases, geolocation, etc.
Analysis and forecasting. The acquired information is used for analysis, identifying patterns, and forecasting the future behavior of the applicant. AI-based platforms can track trends in consumer data and conclude potential credit risks.
Classification of borrowers by risk levels. AI can group potential borrowers based on their predicted level of credit risk. This allows lenders to tailor their offers and strategies. Additionally, this capability enables credit organizations to efficiently manage their resources and mitigate the consequences of potential losses.
Real-time forecast adjustments. AI-based systems continuously monitor market conditions and borrower behavior. This enables them to adjust credit risk forecasts in real-time, thereby increasing the profitability of the credit portfolio.
Advantages of AI-Based Digital Credit Scoring
Lending organizations that have implemented artificial intelligence into their processes can experience firsthand all the benefits of this innovative technology, namely:
High Accuracy and Speed of Decision-Making
AI-powered scoring systems can process vast amounts of data in a very short time, reducing the process of credit application decision-making to just a few minutes.
Moreover, the high speed does not compromise the results’ quality. This evaluation method helps avoid errors, forecast risks more accurately, and make informed decisions about granting credit.
Expansion of Access to Credit
AI-based scoring systems can integrate and analyze alternative data. This enables lending to populations with insufficient or no credit history.
Such capability contributes to expanding the target audience of credit organizations and providing access to unbanked people for credit services.
Personal Approach to Clients and Increased Satisfaction
AI helps analyze detailed information about potential borrowers, create their profiles, and personally adapt lenders’ offers to each one.
For example, applicants with low-risk levels may be offered lower interest rates, increased credit limits, or longer loan terms.
Transparency of Decision-Making Process
AI-based digital credit scoring ensures stakeholders understand the factors that influenced the decision-making process. This enhances trust in such digital solutions from both credit organizations and their clients.
The Role of AI in the RiskSeal Scoring System
RiskSeal is an AI-powered Digital Credit Scoring system that analyzes the digital footprint of potential borrowers to assess their creditworthiness.
We offer our clients over 300 data points, allowing them to track the consumer’s online presence, assess available online information, and study behavioral patterns.
Such diversity of data serves as an excellent indicator of the applicant’s creditworthiness, enabling the creation of a reliable digital credit scoring and offering personal loan terms.
Want to learn more about RiskSeal’s capabilities? Visit our LinkedIn page or contact us through any convenient means—all contact information is available on our website.