Over the past two decades, credit scoring has transformed the way that traditional lenders interact with their consumer and small business customers. In some cases, scoring has increased the willingness of for-profit lenders to make small business loans previously believed to be unprofitable. In other cases, the move to credit scoring has made it more difficult for entrepreneurs with no or poor credit histories to access business capital.
Community lenders, including Community Development Financial Institutions (CDFIs) and CDFI Credit Unions, generally rely on manual underwriting with the "4C's" - capital, capacity, credibility and collateral - to entrepreneurs unable to access credit from mainstream financial sources. Can they increase efficiency and profits by looking at credit scoring without giving up their niche?
Highlighted Articles and Research
By FIELD and Credit Builders Alliance
Did you know? The best way to help entrepreneurs build credit is to report on- time monthly loan payments to the credit bureaus.
This FIELD Funder Guide (issue 14) guide written collaboratively by FIELD and CBA outlines challenges faced by microenterprise programs in credit building and how funders can support their work in this area of practice. Read more>>
By Andrea Berger and Marisa Barrera, ACCION New Mexico; Livingston Parsons, ACCION USA; and Joyce Klein, Aspen Institute
Did you know? Borrowers with good scores were motivated to pay a loan back on time for their credit score, but for borrowers with lower scores their relationship with ACCION was the biggest motivator.
A paper from the Aspen Institute's FIELD program examines the potential of credit scoring to help U.S. microlenders increase efficiency, improve risk management and achieve greater scale. The report profiles credit-scoring projects undertaken by ACCION New Mexico and ACCION USA. Read more >>