Artificial intelligence (AI) is transforming the credit industry, swinging power back to consumers and away from the credit bureaus for the first time ever.
Highlighting the significance of credit scores in 2023 and the challenges consumers face in understanding and improving their credit is Adrian Nazari, founder and CEO of Credit Sesame, a personal finance company that helps consumers manage their credit and credit decisions.
In 2023, a good credit score is your golden ticket to a world of opportunities and opened doors – when your score is up, lenders view you as money-smart which leads to better loans, great interest rates, and the freedom of higher credit limits.
It can tip the scales in your favour when apartment hunting or searching for jobs. Yet many Americans still don’t understand what factors determine their credit score, let alone how to improve it.
In the early 2000s, most people checked their credit score once a year, mainly from the big names Equifax, Experian and TransUnion, but as we neared 2010, the fintech world started shaking things up.
Suddenly, we had online tools to check our scores on-demand, get advice, and view full reports whenever we wanted. By the late 2010s, our credit data was everywhere and in many formats.
With all this information came a new problem for consumers: Banks and technology companies were flooding us with tons of credit data. There were myriad ways to measure scores and heaps of report details that kept changing. It started to feel less about just getting your score and more about navigating a maze to figure out what it all means. The overabundance of data leads to cognitive overload for the everyday consumer, resulting in a sort of action paralysis.
Managing and optimising our credit can seem daunting in a digital era where finances are intricately interwoven with our daily lives. However, the evolution of technology has presented us with previously unimaginable solutions.
Among these recent advancements is the development of personal AI credit advisors that have the potential to revolutionise how consumers engage with their finances and simplify an outdated, confusing system giving power and knowledge back to consumers.
Consumer dissatisfaction with the credit industry
Such an overwhelming landscape leads to ambiguity, leaving many feeling lost in the convoluted credit universe. This sentiment resonates with the Consumer Financial Protection Bureau (CFPB) findings. Their 2022 report spotlighted that a whopping 75 per cent of consumer financial market grievances revolved around credit or consumer reporting. The prime concern? Inaccuracies on consumer credit reports are often at the heart of these complaints.
In line with this, two 2022 publications echoed these concerns. First, the Wall Street Journal highlighted that Equifax had dispatched flawed credit scores for millions. Sometimes, these deviations swung by 20 points or more, enough to make or break loan applications or influence interest rates. Secondly, our own survey, Credit Sesame Personal Finance and Credit Survey Reveals America’s Credit Use is Rising at the Wrong Time, uncovered startling revelations: approximately one in six Americans remain oblivious of their credit scores, and a staggering 40% were unaware that these scores determine lenders’ trust in their repayment abilities.
While the financial industry is a powerhouse of innovation and is moving at lightning speed to improve their data and accuracy, there’s a challenge with the tools consumers have that are not keeping up – tools that are still just about a number and some product recommendations.
AI-simplified credit management
At the intersection of AI and credit management, there’s immense potential waiting to be unlocked. AI and machine learning can intricately analyse spending habits, payment histories, and more, offering bespoke recommendations to boost credit scores and overall financial health.
Given the pace at which the financial sector is innovating, there’s a stark disparity between the advanced tools available to industry professionals and the dated, rudimentary tools offered to the average user. This gap represents a significant challenge, yet simultaneously, a monumental opportunity. We’re determined to place consumers at the forefront, harnessing our robust AI capabilities to ensure they stay on par with industry advancements.
From my experience, I’ve always believed that while credit might seem daunting to many, simplifying it is the key. Traditionally, lending has been optimised for lenders. They take in billions of data points to ensure they make the right decision for their own interests.
But, leveraging AI can make those same data points easy to understand for the consumer. What it really takes to demystify the entire credit process is a deep understanding of the mechanics of lending and credit scores, combined with an ability to break it all down into straightforward and uncomplicated pieces.
We’re at an inflection point in the personal credit continuum: the next phase for the industry will be to leverage AI to find the key areas that a customer should understand and solve right away and get real time, bespoke advice on various kinds of actions to help improve their score.
That’s exactly what our AI does for our customers.
Taking all of this into account, Credit Sesame has introduced Sesame Ring™, our latest innovation that helps demystify the complex world of credit. We distil complex data into visually captivating and understandable formats. Users can quickly gauge their Sesame Grade™, credit score specifics, and a summarised credit report with the Sesame Ring. Furthermore, we also equip them with actionable plans, intelligent alerts, comprehensive credit monitoring, and assistance with dispute resolutions. Think of it as a free personal credit advisor who is available 24/7.
The future of credit
Peering into the future of credit management, there’s a palpable need for tools specifically designed for consumers, not the corporations and big banks. Our AI tools have shown us that almost all customers have a problem on their credit profile they can fix (even high score customers), a product they can sign up for that will save them money or provide better benefits. These tools sift through billions of data points to identify how a person is managing their credit and provide them with actionable steps they can take to improve it while empowering them to grasp their full-picture credit information seamlessly.
Elevating credit data accessibility via user platforms and pushing for more transparency from credit agencies is the need of the hour. This will facilitate a clearer understanding of one’s credit status and guide the journey toward improvement, and ultimately better quality-of-life. It’s essential for individuals to access these reports and truly understand the nuances of credit scores, manage their finances wisely, and make educated decisions.
It’s imperative that all Americans understand their score and are provided with the tools to improve their overall financial fitness. Looking ahead, AI will be a game-changer in providing consumers an advantage and ushering them into the vast realm of finance confidently. The ultimate goal? To empower consumers to achieve their financial goals – whether that is a new home for their family or driving off the lot with a new car.