How Will Your Digital Footprint Affect Your CIBIL Score?

Payment systems and transaction processes are changing. Thus, the way to access risks and underwrite loans must also change.

During this digital banking era, lending companies are undoubtedly susceptible to fraud. Consequently, the traditional credit model fails to meet the needs of digital lending. However, digital footprints have the potential to make up for the lack of data for credit scoring.

Limitations In Legacy Credit Scoring Models

An individual's CIBIL score is a reliable indicator of their creditworthiness. It's a three-digit number that represents a customer's credit history. One can improve their CIBIL score consistently by making advance or on-time payments.

Credit-scoring bureaus create models to predict whether lending to a potential borrower is safe. Credit scoring algorithms advanced from when they began, but cybercriminals remain a significant threat.

Due to the availability of technology to these cybercriminals and fraudsters, ID theft has escalated considerably. Increasingly, fraudsters are applying for loans with stolen identities and good credit scores from lenders whose systems cannot detect fraudulent activity.

Consequently, lending institutions are shifting from traditional credit score-based models to data-based analyses.

Digital Footprints And How It Can Affect CIBIL Score

What is Digital Footprint Data?

The term digital footprint refers to any data collection about a specific individual, such as social media profiles, web cookies, or behavioural patterns on the web. Digital footprint data includes factors such as purchase history, browser activity, and IP address that can be useful in fraud prevention.

Types Of Digital Footprints

There are two types of Digital Footprints - Active and Passive.

• Users who create an active digital footprint post videos or texts on social media, send broadcast communications and write blogs.
• The passive digital footprint is the information stored in one's browser as cookies when a visitor or registrant visits a website.

Credit Scoring: What Role Is Digital Footprint Data Playing?

1. Alternative Data For Credit Scoring

The digital footprint analysis system evaluates an individual's Internet usage patterns to determine their identity. Even in countries with high levels of unbanked citizens, digital media can provide valuable data due to the growing adoption of digital media.

Using alternative data to make up for a digital footprint may seem extra, but it can help deter fraudsters. Modern credit scoring algorithms create various computations and mine, structure, and weigh rich data to build future-proof credit scores.

Lending companies analyse various data sets to determine whether a consumer is creditworthy. Online presence, remittance history, social media data, smartphone metadata, psychometric data, utility bill payment history, e-commerce merchant rating, etc., are some alternative data sources.

2. Predict Credit Behaviour

Borrowers often characterise emerging markets with negligible credit histories. Lending institutions can sanction loans to such individuals using digital footprint data. Moreover, a combination of historical data and new consumer data helps Fin-techs predict credit behaviour accurately. This diverse set of data can generate relevant consumer insights using data analytics.

3. Better Customer Experience

The number of lenders in the market has increased, making it difficult for existing players to gain a competitive edge. By leveraging digital footprint data for personalisation and high-quality customer experience, Fin-techs can deliver the best in class customer experience.

A good data mining and analytics system can help loan origination systems assess a prospect's risk level and offer advice on tailoring loan products to suit their needs. A financial lending institution can also develop collection strategies based on the customer's credit risk.

4. Ability To Repay Versus Willingness To Repay

A website can easily track whether the access point is on a PC or Smartphone and the OS running on the smartphone. It is possible to assess a potential borrower's social behaviour based on the device's model from which they browse digitally for time elapsed, the type of websites they frequently visit, and their interactions in public social networks.

By mining and analysing a person's behavioural patterns with advanced tools, one can determine their willingness to repay loans. By doing so, borrowers without a CIBIL score but with a desire to repay have a greater chance of getting a loan.

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If you need funding for personal or business goals, IIFL Finance is here for you. We offer various loans, including gold, business, personal loans and more, to fulfil all your financial needs. You can customise our loans with a hassle-free application process to meet your capital requirements. Apply today!

Frequently Asked Questions:

Q1. What factors decide the CIBIL score?
Ans. Among the primary factors affecting your credit score are your payment history, the debt amount, your credit history, new credit, and types of credit. There is a different weightage for each factor in your score.

Q2. What is my digital footprint?
Ans. When you browse the Internet, you leave behind a digital footprint. It refers to the websites you visit, the emails you send, and the information you share with online services.