Christian Widhalm, CEO of Bloom Credit, joins TheStreet to explain different types of credit scoring.
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00:00So there's a lot of discussion about credit scoring and credit data right now.
00:05Can you talk to me about the difference between traditional credit scoring and alternative
00:12credit scoring?
00:13Yeah, for sure.
00:14Look, and I think one thing that's important to understand, especially on the consumer
00:17side, is that credit is kind of like the chicken or the egg.
00:20If you don't have credit, it's tough to get credit.
00:23So I think before getting into the alternative side, it's important to understand what's
00:27going on with traditional credit reporting.
00:30The way that it's structured today is that you have three main credit bureaus in the
00:34United States, TransUnion, Equifax, and Experian, and they get all of their data on consumers
00:40from monthly reports that are sent from lenders that have repayment information on things
00:44like loans, credit cards, that ultimately make their way into the major credit bureaus.
00:50Now, traditionally, these have been limited to those types of products.
00:54The problem today is that credit data today is way more complex than it was 10 years ago.
01:01And at the same time, credit data today is less complex than it will be in the future.
01:07And that's because of a few different things.
01:10One is the introduction of new types of products and services that have been coming in, more
01:14novel financial products, things like BNPL.
01:17And ultimately, the way that consumers have changed their behavior around credit products
01:21has led to this sort of change.
01:24With FinTech, financial technology companies, they are working on the ability to take all
01:30of this new types of data in to help actually benefit the broader ecosystem, and specifically
01:34the consumers, for being able to access more affordable credit.
01:38And that's where the shift starts going from traditional scoring to now alternative scores
01:43that are going to include more types of data.
01:45And so if the data is, or the data are king, right, what kind of data should be included
01:52in this new alternative model?
01:55Yeah, sure.
01:56So there's a bunch of different types of data that ultimately can be included.
02:00A lot of it actually resides within the checking accounts of consumers.
02:05A lot of consumers, especially those that don't have access to a lot of credit, they're
02:09transacting through cash, through their checking accounts.
02:12And there's a lot of real golden information in there that can actually help them demonstrate
02:16credit worthiness.
02:17Things like monthly recurring obligations, such as rent, telco, right?
02:22Their cell phone bill, their utilities payments, water, gas, and electric that can go in.
02:26Among others, BNPL repayment, which isn't really taking full force yet, is also in the
02:32mix there, actually to help bolster the ability for consumers to demonstrate their credit
02:36worthiness in new ways.