WSJ: Lenders Are Using Grades, Magazine Subscriptions to Decide on Loans

An employee at a money changer counts USD 100 bills in Manila on October 25, 2012. AFP PHOTO/NOEL CELIS

Financial institutions used to rely primarily on credit scores when giving out loans. Now they are considering unconventional criteria like whether applicants shop at discount stores, subscribe to magazines or pay their phone bills on time, according to a new report.

In some cases, an individual’s school grades are used to determine if a loan application is viable.

The Wall Street Journal reports that the way lenders are deciding who can borrow money is undergoing its biggest shift in a generation. Companies experimenting with new metrics include major banks like Goldman Sachs and Ally Financial, as well as smaller startups.

Banks have traditionally sought out creditworthy customers. But they are now seeking out new borrowers in an effort to fatten their bottom lines.

The Journal cited anonymous sources saying that lenders including JPMorgan Chase, Citigroup, and American Express have been talking to FICO about whether incorporating new data into credit scores could boost loan volume.

Separately, lenders have been asking Experian for ways to find new customers who are more financially responsible than their credit records suggest, the report says.

In one instance, a 24-year-old woman with a low credit score from unpaid medical debts sought financing from fintech startup Meritize. The company, which gives out loans for higher education and skills-based training, used her high-school transcript to approve her for loans totaling $9,000 to attend welding school.

Meritize told the Journal that it considers factors such as improvement in grades and signs that students challenge themselves.

Credit agency TransUnion said it sells “alternative data” to U.S. lenders that can include whether consumers subscribe to and pay for magazines. “It’s an indicator of stability,” the company told the Journal.

ZestFinance, a fintech startup, said applicants who spend more at grocery stores than on eating out tend to be a lower risk, as are those who shop at discount stores or are registered to vote.

But the Journal noted that the changes could make “millions of borrowers appear safer than they are, diluting the value of credit scores and reports. Others say the alternative metrics, like a consumer’s reliability in paying electric bills, don’t translate into a likelihood they will repay their loans.”

Follow David Ng on Twitter @HeyItsDavidNg. Have a tip? Contact me at


Please let us know if you're having issues with commenting.