Importance of credit scoring for loan decisions

“What if they don’t pay back?”

If we had to compile a list of questions frequently asked by lenders, this would probably be top of the list. It’s the biggest and most terrifying question a lender is faced with when assessing a loan application.
Lenders in Nigeria are constantly forced to confront the reality that Nigerians don’t have the best track record with repaying loans. This is one of the hurdles to scale as a lender. It’s the general belief that short of being clairvoyant, there’s no way to know whether or not a borrower will pay you back … or is there?

How credit scoring works

It’s been well established over a period of time that certain factors tend to determine if someone (supposedly unknown and with unclear pedigree) would pay back a loan or not. This has been elevated to a level of science, which to a certain degree, underpins the foundation of modern finance. This is known as credit scoring.

A credit score is a number (usually three digits), issued by a credit bureau, and it represents the creditworthiness of an individual. It’s calculated from the analysis of the data contained in the individual’s credit report. A credit score is based on an individual’s credit history, repayment history, financial records and other factors. It’s used to indicate the level of risk associated with that individual. A credit score is used by lenders to determine the likelihood of an individual repaying loans in full and on time.

Essentially, credit scoring is the process of using the information about the prospective borrower, their conditions, and other factors to make an intelligent decision.

Credit scoring with Lendsqr’s decision engine

The number of factors or variables needed to generate a credit score can run into hundreds or even thousands with very sophisticated systems. But all these variables are just madness if they can’t be condensed into a score that is easy to understand and then inform a lender’s decision. A common score abroad is the FICO score which is standard in the US and other parts of the world
However, in places like Nigeria where data is not quite available, lenders have to use other data or proxies such as mobile SDKs to make lending decisions. Filling this credit data gap is one of the places that Lendsqr shines with its “Oraculi” loan decision engine. “Oraculi” means “oracle” in Latin.

Oraculi provides lenders with hundreds of possible data points and its modules are extensively configurable. As a lender, you are able to thoroughly evaluate an individual’s creditworthiness with the numerous checks, including credit bureau and blacklist checks which the engine offers.

At Lendsqr we understand that without credit scoring or decision systems, a lender would be left to lend blindly (much worse than gambling).

A competent credit scoring engine underpins a successful lending business and helps lenders make faster and smarter lending decisions. It also allows lenders to cross correlate performance across similar portfolios and can then provide a mechanism for continuous improvement over time.

To find out more about how the Oraculi decision engine can transform your credit scoring and decisioning, you can engage with the Lendsqr team at [email protected].