No matter what corner of the world you live in, your credit will play an important role in your life. From taking out mortgages to buying cars and taking out credit cards, credit scores will determine how much you can borrow – if at all.
In Canada, like most other countries, the higher your credit score is, the greater the chances of being approved. Those with good credit can typically take advantage of a lower interest rate.
Thanks to technology and the growing adoption of artificial intelligence (AI), we’re seeing changes to how Canadians deal with their credit. AI and other technologies are playing a role in how credit scores are computed, how loans are approved, and how payments are made on those loans.
What is Considered Good Credit in Canada?
Canadian credit scores range from 300-900. The higher your score, the more likely you are to be approved by lenders. A high credit score also means that you’re more likely to have a lower interest rate compared to borrowers with lower credit scores.
There are two primary credit reporting agencies in Canada: Equifax and TransUnion. Lenders report credit-related transactions to these bureaus. Credit scores fluctuate depending on how positive or negative the transaction is.
According to TransUnion, Canadians should aim for a credit score of 650 or higher if they want to be approved for personal loans with good interest rates.
Canadian credit scores are based on the following factors:
- Payment history (35%)
- Debt owed (30%)
- Length of credit history (15%)
- New credit (15%)
- Product variety (10%)
All of these factors help determine your credit score. But thanks to new technology, other factors may also come into play.
How Technology is Changing the Credit World
Credit card technology is changing at a rapid pace. Barclaycard is developing a wearable credit card. Mastercard is also developing a card with a fingerprint sensor to authorize payment instead of a signature.
Credit card companies are also creating chip cards that have mini screens on the back. The screens would display the three-digit security code and could be changed as often as 72 times per day to prevent fraud.
But on the consumer end, technology is affecting how banks collect debt and credit in general is managed. From debt collection to machine learning and artificial intelligence, consumers and lenders now have more ways to manage their accounts.
Smarter Debt Collection
One of the biggest issues with debt collection is that collection agencies harass consumers and often try to collect on debt that is not owed. Technology can change the debt collection process.
Chatbots, artificial intelligence and self-service technology allow lenders to reach out to borrowers at the times and through the channels they prefer. These technologies can help borrowers negotiate their debt and lenders receive higher repayments.
For example, AI systems can tell lenders:
- Which borrowers are past due
- Who is most likely to pay
- The best time to reach borrowers
Big data and machine learning drive these AI solutions.
Artificial Intelligence to Approve Credit
AI and machine learning can help lenders approve borrowers they may have otherwise missed.
Lenders typically reject borrowers with little or no credit history. These borrowers are considered high risk. However, through the use of AI and machine learning, lenders can use public data on borrowers to better gauge the risk. Rather than just relying on the usual 50 data points in credit-score systems, lenders can search through thousands of pieces of data to predict a person’s creditworthiness.
Machine Learning to Make Payments Easier
Machine learning plays an important role in AI, and it can be used to make it easier for consumers to make payments.
For example, machine learning can now be used to automate car loan payments and help borrowers get out of debt faster. Making payments on credit cards and loans is one of the most effective ways to improve credit scores. Automation can help by automatically withdrawing money from the borrower’s checking account to pay loans.
Machine learning, AI and other technologies will continue to change and shape the credit industry. Thanks to the rise in big data, lenders now have access to more information on borrowers. That information can be used to help overlooked borrowers get approved for loans or existing borrowers to make payments on time.