Some of the biggest US banks have signed up for a government-supported pilot program aimed at using alternative data to provide credit for people with low or no credit score.
According to the Wall Street Journal, banks such as Wells Fargo, US Bank and JPMorgan Chase will take part in the scheme to help those with low or no credit scores.
The pilot will begin later this year and will include around 10 banks assessing the creditworthiness of individuals based on their account balances and overdraft history. In order to do this, banks will share customer deposit data such as checking and savings accounts.
In 2019, US federal banking regulators had offered their support for the use of alternative data other than traditional credit scores in determining if a person is creditworthy.
There are currently around 53 million American adults without regular scores. The Consumer Protection Financial Bureau highlighted that this problem disproportionately affects Black and Hispanic people.
An example of a company that is trying to take advantage of this alternative data for the benefit of those locked out is Petal. The company is building technology that examines banking history and measures the creditworthiness based on spending, income and savings.
In September 2020, Petal closed a Series C funding round which raised $55m. The company said the capital injection would allow it to “double down on its mission” of supplying people with honest, simple and responsible credit.
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