Big Data in Lending has Ability to Confirm Biases and Extend Credit to Weaker Borrowers

After the financial crisis banks pulled back from lending to anyone they deemed a potential risk; this helped spur many of the fintech lenders you see today and a wave of new underwriting technology being used by banks; FT Alphaville asks how alternative data is playing a role in underwriting and what it means for borrowers; Moody’s explains some of the new data fields include education, academic scores and job history; the concern is that these new fields could enforce biases as top tier schools and high paying jobs would be viewed as less risky; they could also help lenders to extend credit to borrowers who are too risky as they try to use new forms of data to rationalize a loan; lenders need to be careful and remember the past to not find themselves repeating it. Source.