Alternative Credit Score: Fintech Is Changing Credit Evaluation

For many years, loan approvals in India were largely dependent on the credit score provided by traditional credit bureaus. If you had a good credit history, it was easier to get a loan. But what if you were a first-time borrower? What if you had no credit card, no past loan, or limited credit activity?

This is where the need for an alternative credit score arose, which is a new way of determining credit scores through digital data. With the rise in digital transactions, lenders are now using alternative data for credit scoring.

In this blog, we will discuss how alternative credit score systems function, how fintech credit scoring is changing the way loans are given, and what this means for Indian borrowers.

Why Traditional Credit Scoring Has Limitations

Traditional credit scores are usually based on:

• Loan repayment history
  
• Credit card usage
  
• Length of credit history
  
• Number of credit inquiries
  
• Types of credit accounts
  

While this model works well for experienced borrowers, it creates challenges for:

• First-time earners
  
• Gig workers
  
• Self-employed individuals
  
• People in rural or semi-urban areas
  
• Individuals without formal credit history
  

These individuals may be financially responsible but still get rejected because they lack past credit records.

This is where the alternative credit score becomes important.

What Is an Alternative Credit Score?

An alternative credit score is a credit assessment method that goes beyond traditional bureau data. Instead of relying only on past loans and credit cards, it uses alternative data for credit scoring such as:

• Utility bill payments
  
• Mobile recharge history
  
• Rent payments
  
• Bank transaction patterns
  
• Digital wallet usage
  
• GST filings (for businesses)
  
• Income consistency
  
• Spending behavior
  

This larger set of data allows lenders to assess repayment capability even if the borrower has little to no credit history.

How Alternative Data for Credit Scoring Works

Let’s break this down with a simple example.

Suppose there are two borrowers:

• Borrower A has a credit card and one personal loan.
• Borrower B has no credit card but makes timely payments for rent, electricity bills, and regular salary deposits.

Under traditional systems, Borrower A may appear stronger. However, using alternative data for credit scoring, Borrower B’s financial discipline can also be measured.

Here’s a simplified comparison:

This approach provides a more complete financial picture.

Role of Fintech Credit Scoring in India

The rise of digital payments, UPI transactions, and online banking has created a massive pool of financial data. Fintech credit scoring companies use technology and artificial intelligence (AI) to analyze this data quickly.

Instead of manually reviewing documents, fintech platforms:

• Use AI algorithms
  
• Analyze transaction patterns
  
• Identify income consistency
  
• Detect spending habits
  
• Measure financial stability
  

This makes loan approvals faster and often more inclusive.

How AI Enhances Alternative Credit Score Models

Artificial intelligence plays a key role in fintech credit scoring.

AI systems can:

• Detect income trends from bank statements
  
• Identify recurring expenses
  
• Assess risk patterns
  
• Predict repayment probability
  

For example, if a borrower shows steady monthly income deposits of ₹35,000 and regular rent payments of ₹10,000 without delay, AI models may classify them as low-risk — even if they lack a traditional credit history.

This is the power of an alternative credit score.

Why Alternative Credit Scoring Matters in India

India has millions of individuals who are “credit invisible.” These are people who:

• Have stable income
  
• Use digital payment apps
  
• Pay bills regularly
  
• But have never taken a loan
  

Without traditional data, they may struggle to get approved.

By using alternative data for credit scoring, lenders can:

• Expand financial inclusion
  
• Reduce rejection rates
  
• Serve underserved segments
  
• Offer customized loan products
  

This is especially important in a fast-growing digital economy.

Example: How Alternative Scoring May Impact Loan Decisions

Here’s a simple illustration:

Note: Illustrative examples.

This shows how fintech credit scoring can provide deeper insights than traditional systems alone.

Benefits of Alternative Credit Score Systems

1️. Faster Approvals

AI-based analysis reduces manual verification time.

2️. More Inclusive Lending

First-time borrowers get fair evaluation.

3️. Better Risk Assessment

Lenders assess real-time income patterns.

4️. Customized Loan Offers

Interest rates can be aligned with actual risk.

Are Alternative Scores Replacing Traditional Scores?

Not entirely.

Most lenders use a combination of:

• Traditional credit bureau data
  
• Alternative data for credit scoring
  
• Internal risk models
  

The intention is not to substitute conventional systems but to complement them.

Platforms within the digital lending space, as well as fintech-enabled services such as Olyv, are increasingly using technology-based assessment tools to better understand the eligibility of borrowers before submitting their applications.

Risks and Concerns Involved

Although promising, alternative credit scoring also poses some risks:

• Data privacy issues
  
• Over-reliance on algorithms
  
• Misinterpretation of spending behavior
  
• Consent-based data sharing
  

That’s why regulated data-sharing frameworks and borrower consent are important.

How Borrowers Can Benefit

If you are someone without a long credit history, here’s how you can benefit from alternative scoring:

• Maintain consistent bank transactions
  
• Pay utility bills on time
  
• Keep digital payment records clean
  
• Avoid irregular income patterns
  
• Maintain stable employment records
  

Even without a traditional credit card, your digital financial behavior can strengthen your profile.

The Future of Fintech Credit Scoring in India

India’s digital infrastructure — including UPI, Aadhaar, and online banking — has created a strong foundation for fintech credit scoring.

In the coming years, we may see:

• Greater use of AI and machine learning
  
• Real-time credit assessment
  
• Faster loan disbursals
  
• Personalized interest rates
  
• Improved financial inclusion
  

The alternative credit score model is expected to play an important role in increasing access to formal credit.

Final Thoughts

The manner in which lenders assess borrowers is undergoing a dramatic transformation. An alternative credit score provides a contemporary answer for those who do not conform to conventional credit models.

With the use of alternative data in credit scoring, including banking transactions, bill payments, and online behavior, lenders now have a more accurate picture of borrowers’ repayment ability.

However, fintech credit scoring platforms enabled by AI are also making credit scoring faster, smarter, and more inclusive.

For the borrower, this means:

• More opportunities
  
• Fairer assessment
  
• Faster approvals
  
• Reduced dependency on past credit history
  

As digital finance continues to grow in India, alternative credit scoring is not just a trend — it represents the future of responsible and inclusive lending.