How Can Big Data Help Rebuild My Credit?

Trisha Miller
Big data

You may have heard the term “Big Data” before, but what does it really mean? What’s more, what does it have to do you with your finances and your credit score? We’re ready to break down some intimidating barriers between you and financial knowledge. We’re going to dive into the world of Big Data and help you understand that it’s not such a scary thing. In fact, we’ll talk about how Big Data is helping to get more people approved for things that can affect their credit. Lastly, you’ll understand why it’s important to educate yourself about your credit score. You’ll know how and where you can go to find the most up-to-date information about this ever-changing world of credit.

Table of Contents

What is Big Data?

“Big Data” is a term used to describe large sets of information that can be analyzed for trends. Specifically, Big Data refers to information that can be collected about people — how we spend money, what types of products we are attracted to, our social media habits and much, much more. Companies collect this vast well of data and analyze it for trends (a process known as data analytics). This way they can tailor their products and services to the people using them. They know the types of things we gravitate to because the data tells them so.

Using Big Data, they can also prepare for the future. If a company wants to launch a new product or service, but they aren’t sure how well it will do with the public, they can consult with Big Data to find out what trends have proven true in the past. In that way, Big Data serves as a wonderful risk analysis tool for companies as well. This bring us to how Big Data is affecting you financially.

How Does it Affect My Credit Score?

Well, technically speaking, data analytics have always played a part in our credit scores. Banks, lenders, and credit agencies are all using the same information to make decisions about our credit. Credit agencies that compile our credit scores have already been doing this for some time. These companies reach out to banks, lenders, and creditors to receive a full readout of our credit history. Each of these companies uses this same data to make decisions about our credit scores and whether or not we can qualify for new lines of credit. The only difference today is that the number and size of these sources of data are growing, thanks in large part to digital technology. The scale of all this data today is what makes it Big Data.

In the past, data was used to check your credit history and form your credit score. However, each credit bureau scores your data a little bit differently. Not to mention, the scope of information included in your credit history and thus allowed to impact your score has been very strict. Each company uses the same limited scope of data to come up with a similar, but different score. Going into the future, some companies would prefer to use Big Data from a larger profile of an individual and their credit habits to inform credit scoring.

How is Big Data Changing Credit Scoring?

The three credit bureaus (Experian, Equifax, and TransUnion) recognized that one specific method of creating a realistic and accurate credit score just isn’t always working. The standardized system used in the past, FICO, has started to feel a bit restrictive and doesn’t include many Big Data items that come with a modern financial wallet. This means, there is so much more financial data being produced each day by the average person than these three bureaus are currently utilizing. It’s simply missed opportunities to compile a fully accurate portfolio of an individual’s financial history.

This is where VantageScore comes in. In order to combat the traditional FICO system, these three bureaus have created an entirely new system called VantageScore. VantageScore started as an idea and a system and has blossomed into an entirely new enterprise. VantageScore is now a company that specializes in new methods of credit research. They are paving the way for new uses of Big Data that may be able to affect a person’s credit history and provide a more accurate score.

VantageScore is also helping to hold the credit bureaus to a new level of standard. Previously, it could be difficult to positively know that your credit score was completely accurate. Now, VantageScore is using Big Data to evaluate scores and hold the bureaus to a more precise representation of your score. They will look at your history with credit cards, auto loans, car loans, and more to see what trends are exposed with a “big picture” outlook on your credit. For example, your credit score may be currently suffering because your credit card is maxed out. However, if credit bureaus were to see the big picture, they might see that you have a history of utilizing all of your credit, but also paying it back in a reasonable amount of time. The fact of the matter is, they just don’t have all of the information when they only take a snapshot, rather than a look at longer-term trends in your credit report.

As this system grows, it will mean benefits for companies and borrowers alike. Seeing the full, accurate reflection of an individual’s credit score will give banks more confidence to lend money more often. This means more people in the world will be approved for loans and will be able to work on their credit scores. Improved credit scores means even more disbursed loans to the right people. For this reason, FICO scores are beginning to further integrate Big Data and similar digital age analytics like VantageScore.

How Does This Help Me Rebuild My Credit?

First and foremost, having a more accurate representation of your overall credit history could repair bad credit scores. As it stands, you may find yourself with less than optimal credit, but as we showed above, if banks and lenders were able to see a larger picture they might change their minds about your true credit history. This means, that you could possibly see an increase in your credit score overnight. Of course, this isn’t to say that most people will see a change once the VantageScore system rolls out this fall, but it is possible.

VantageScore is also working to leave out unpleasant details from your credit score, which would help to rebuild your credit quickly. The National Consumer Assistance Plan is expected to roll out new credit scoring policies that remove or lessen the impact of things like tax liens, medical collections, and negative public records on your credit history. If this succeeds, many Americans will be relieved of credit issues outside of their control that have been plaguing their credit scores. Again, this will not apply to everyone, but those affected could see their score repaired quite quickly.

Lastly, after this program is rolled out, lenders and credit bureaus will be able to compile a more comprehensive detailing of your credit choices going forward. This means that many new, good choices may weigh more heavily on your credit score than a few old, bad ones. In the past, negative decisions, some that were out of your control, had the absolute heaviest impact on your credit score. Going forward, credit bureaus would prefer that good choices that have longevity weigh just as heavily on your score as mistakes. The system works the same, your credit score won’t be repaired quickly unless you plan on working on good habits for some time, but you’ll only have to counteract the serious mistakes that truly matter.

How Can I Educate Myself About My Credit Score?

Since the major credit scoring companies are taking advantage of Big Data, they also have a very beneficial position with customers. VantageScore in particular is working to educate the public on exactly what changes banks and lenders want to see in order to be approved for loans and create long term financial stability.

The VantageScore website is filled with information and resources for anyone to learn more about the VantageScore system, their credit score, and how to improve it. In their own words, “VantageScore is firmly committed to the belief that consumers should understand and take control of their own credit scores. To that end, we are dedicated to educating consumers about the roles credit scores play in our financial lives; the ways in which lenders, landlords, and other stakeholders use credit scores; and how personal choices and behaviors can raise or lower credit scores. Ultimately, our goal is to empower a wide range of consumers to take charge of their financial lives and to use credit responsibly in pursuit of their dreams.

It’s very important that each of us take a firm role in our credit reporting and scoring. Use the information that these companies have provided to us to our advantage. We are ultimately in charge of everything that companies and bureaus see through the lens of Big Data. In an age of total transparency (whether we want it or not), we must become completely aware of the financial footprint we’re leaving behind. Take some time to become acquainted with your financial history and your credit score. Education is the best possible way to make the improvements necessary for you to feel successful in your financial endeavors.

For more information on credit scores, visit our credit score resource and learning center.

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