Sat, December 03, 2022

Why is the Future of Credit on Blockchain?

Why is the Future of Credit on Blockchain?

Forecasts show that blockchain will revolutionize various processes. Its features and innovative functionality are gradually changing pre-existing systems — and credit scores aren’t any different.

According to FICO’s ratings, the average American’s credit score is 703, which is ‘good.’ Credit score calculations rely on several variables concerning your credit history. They include a number of open accounts, repayment history, the total level of debt, and other factors. The higher the score, the better a borrower looks to potential lenders.

Citizens need credit scores for more than basic loans, credit cards, and mortgage applications. Landlords and apartment complexes heavily rely on them. Meanwhile, insurance products like renter’s insurance and automobile policies may even require a credit check. In fact, some employers might even seek a credit report before hiring a candidate. However, despite how useful crucial credit cards are for day-to-day transactions, credit card ownership actually declined amongst consumers aged 18-25 after the 2008 financial crisis, according to Petal Card. Not to mention, the average credit score for consumers below the age of 35 is 665. That falls well below the national average.

Following the Equifax data breach settlement that reminded consumers about how thousands of consumers’ private information was compromised, it comes as no surprise that younger generations avoid staying away from credit. Financial institutions and credit scoring bureaus need to look to blockchain as a possible solution given how crucial it is. It will potentially increase the number of credit card users. As well as guarantee more secure and easily validated transactions.

 

How can blockchain help with credit scoring?

“Blockchain technology can provide assistance to reputation-based credit scores in a variety of ways,” explains crypto investor and analyst Igor Davidov in a Medium feature. He imagines a more holistic approach to how financial institutions can calculate credit scores. This is because blockchain can help record and verify other significant social factors that may enter the picture. As opposed to just relying on the current data avenues and models for determining credit ratings. For instance, the blockchain can record actions such as donating to charity, helping a stranger change a tire, or even being on time to meetings.

Not to mention, blockchain’s entire structure emphasizes security — a must to gain consumer trust. This immutable ledger has the capability of providing much better protection for vital information. In addition, credit scoring became an easily solvable issue for such systems.

In fact, blockchain in credit scoring already started its implementation — albeit in small ways. HSBC was able to execute a live blockchain letter of a credit transaction and is being examined as the mode of issuing LC moving forward as businesses and the governments recognize the safety and swiftness in performing tasks using blockchain technology. On the other hand, companies like Bloom issue credit that’s fully operated on the blockchain, where consumers create and build a blockchain-based identity profile to improve consumer data security.

While we may be a long way off worldwide adoption, blockchain-based credit scoring is slowly happening. Many factors are already tipping the scales towards its use, and with hacks so prevalent nowadays, who would argue otherwise?

YOU MAY ALSO LIKE

dollar

The Dollar Remained Stable The dollar held steady but was pinned near

The Optimism of Slowing Interest Rate Only Goes So Far

The all-important jobs report caused a lot of volatility near a key

Oil refinery

Oil Futures Prices Were Mixed Oil futures were mixed on Friday, buoyed

COMMENTS

Leave a Comment

Your email address will not be published.

User Review
  • Support
    Sending
  • Platform
    Sending
  • Spreads
    Sending
  • Trading Instument
    Sending

BROKER NEWS

Consob Blocks 4 More Illegal Trading Platforms

Italy’s financial market watchdog, Consob, has blocklisted four more websites for operating illegally in the country. The number of fraudulent blocklisted platforms reduced to 805 is the ongoing effort by authorities to reduce

BROKER NEWS

Broker News

Consob Blocks 4 More Illegal Trading Platforms

Italy’s financial market watchdog, Consob, has blocklisted four more websites for operating illegally in the country. The number of fraudulent blocklisted platforms reduced to 805 is the ongoing effort by authorities to reduce illegal