Prior to the Great Recession, just mentioning alternative credit so many people would have resulted in some confused responses. Just a decade ago, many people were not aware that they could use alternative financial services when they were in need of cash. These days, though, we are all aware that these types of loans became available to people during the rocky financial happenings that took place in the mid-2000s.
In 2008, right when the recession was at its peak, there were millions of people who could not even get access to traditional loans from their neighborhood banks, no matter how hard they tried. People looking to purchase homes, autos or even to get loans to keep their heads above water were turned down by the traditional banking system left and right. Of course, these same people found out about alternative financial services, like payday loans, and turned to these types of organizations to get access to money that was otherwise unavailable.
Thankfully, the economy is finally beginning to recover a bit, and shows signs that it will continue to for some time. But the fact of the matter is that many people who were hit the hardest by the recession still have low credit scores. The recession forced many people to make unwise financial decisions out of necessity. Gas prices were sky high, groceries were more expensive than ever, and people were scratching just to stay alive. It all boils down to the fact that even though the economy is doing better, many people still have to utilize alternative financial services due to their damaged credit scores.
Alternative credit scoring is quickly becoming a hot topic in the overall financial industry. People are getting better at staying on top of their bills and monthly expenses, but there are always emergency expenses that pop up. Those folks out there with subprime credit scores can’t exactly stroll into their banks to get small dollar, short term loans. But they can, and very often do, utilize the services of payday lenders and other short term lending companies to get loans that are not contingent upon their FICO credit scores.
The alternative credit scoring system is becoming so popular, in fact, that there are now all types of lenders who are taking these scores into consideration when they lend money. The proven effectiveness of alternative consumer credit scores may even soon gain national prominence and become even more popular, as the mainstream lending companies realize how much additional revenue they could bring in if they were to use alternative scores as part of the lending process, and ease their stringent standards a bit. The bottom line is that mortgage lenders, like other lenders, have to get with the times and open up their products and services to a people who are ready, willing and able to borrow responsibly; despite the financial mistakes of the past.
The Washington Post recently reported that the traditional credit ratings systems are dated and have become almost obsolete these days. Yet those same credit scoring systems are used by big lenders, like Fannie Mae and Freddie Mac. There are now groups that are lobbying these big mortgage lenders to being taking alternative credit scores into the equation when they decide who to lend money to. It may not happen next week or even next month, but we can all look forward to a time when it will be possible for consumers with subprime credit scores to get a fair shake at mortgages. The rising popularity of alternative financial services and alternative credit scoring seems to indicate that such a time may come around a lot sooner than anyone would have guessed.