A brief history?and future?of credit scores

An algorithm crunches the credit scores (a number between 0 and 400 indicating the likelihood of repaying a loan) of millions of Georgians, selects the best prospects and auto-dials them.Something like this has been happening in rich countries for decades, but in Georgia it is a recent development. Loan officers used to make around ten decisions a day, says Vasil Verulashvili, who runs credit-risk management for Bank of Georgia, the country’s largest bank by assets. Working with Equifax, Experian and TransUnion, three credit bureaus that had come to dominate the market, in 1989 Fair Isaac unveiled the first consumer-credit score: a number between 300 and 850, where higher scores indicate a better credit rating. Known as the FICO (for Fair Isaac Corporation) score, it rapidly became the standard for American lenders.Whereas FICO had previously created custom algorithms for lenders by mapping their past customers’ attributes onto future ones, its new score used the troves of data held by the three bureaus to assign a three-digit number to every individual in the system. The Chinese government is now in the process of building, through its national bank, a system to extend financial credit scores to all its citizens—one aspect of a broader “social credit” system.But in smaller, poorer countries with little financial infrastructure, credit-scorers have limited data to work with. Such proven payment data, says Michael Turner of PERC, an American think-tank focused on financial inclusion, are a good guide to risk in the absence of a credit history. Good borrowers include those who put both first and last names in their contacts, those whose travel and location follow predictable patterns, and those who communicate regularly with a few contacts.Someone who uses taxi apps is a lower risk, says Paul Randall of Creditinfo, which also operates in several poor markets, because it suggests they have a smartphone with a payment method that they use regularly, rather than one set up for the purposes of applying for a loan.