Creditworthiness for Americans, down the road, may expand beyond the FICO score—the grade created by the Fair Isaac Corporation.

Right now, as you know, a person’s ability to borrow is largely dependent on his/her/their FICO score. And it’s an important number for Note buyers; it’s a great predictor in most cases of the future cash flow (of the Note[s]), which it helps determine loan pricing.

But what if a lender is evaluating a borrower who’s from another country, for example, and who has no credit history. That doesn’t mean the person is a high-risk borrower; it just means it’s hard to know how risky a loan to that borrower might be.

Some companies are using other ways to determine creditworthiness in less-regulated markets—phone data.

In many markets, financial transactions happen through text messaging rather than email, so access to SMS logs may provide insights into the person’s cash flow. That wouldn’t work in the U.S. because federal laws regulate how information can be used in lending decisions. But it’s an interesting alternative, and it does relate to one of our core principles as a private lender: the FICO score is critical, but it doesn’t tell the whole story.

One of the challenges of teaching someone about the Notes industry is the nuances of Notes. Every deal is different because every seller is different.

ASIDE: I find someone is either curious or they aren’t, and it’s really hard growing a profitable Notes business without curiosity.

In addition to knowing a FICO score, it’s important to look at other past behaviors like career progression, lifestyle choices, and more. All of it creates a story of risk.

FICO scores are important, but to determine risk, you have to look at the whole story. Get curious!

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Photo by Annie Spratt on Unsplash

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