Historically, one’s creditworthiness as a consumer was determined through a review of financial data, including credit history, prior borrowing and repayment practices, etc.

As a business owner, the ability to raise capital is dependent on many factors, including a strong balance sheet and customer base, debt levels, sales results, a compelling business plan, and more.

When industry sectors underperform, businesses in that sector will be under greater scrutiny, as risk to lenders must be mitigated. Similarly, when economic results deteriorate, both consumers and businesses may incur greater difficultly securing investment or credit.

According to an article published in The Wall Street Journal on September 12, 2019, some banks and other lenders in the U.S. are now considering using additional data to measure one’s credit risk and worthiness. Some of the criteria for consideration could include timely payment of phone bills, shopping habits (i.e. what retailers you frequent), magazine subscriptions, etc. The rationale is that this additional data will provide important insights for risk evaluation. Presumably, the lenders will use sophisticated analytics to calculate risk, as without this, the evaluation could range from mildly to highly subjective.

If lenders deem this successful for consumer loans, what are the implications for small- and mid-sized businesses and start-ups? Will this benefit consumers and businesses, and if so, is it worth the further potential invasion of privacy?

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© 2019 Lorraine A. Moore. All rights reserved. Permission granted to excerpt or reprint with attribution.