How AI is rewriting 70 years of lending rules

"For most of modern finance, one number has quietly dictated who gets ahead and who gets left out: the credit score. It was a breakthrough when it arrived in the 1950s, becoming an elegant shortcut for a complex decision. But shortcuts age. And in a world driven by data, digital behavior, and real-time signals, the score is increasingly misaligned with how people actually live and manage money."

"We're now at a turning point. A foundational system, long considered untouchable, is finally being reconstructed by using AI -specifically, advanced machine learning models built for risk prediction-to extract more intelligence from existing data. These are rigorously tested, well-governed systems that help lenders see risk with greater nuance and clarity. And the results are reshaping core economics for lenders. THE CREDIT SCORE WASN'T BUILT FOR MODERN CONSUMERS"

"A single, generic credit score is a compromise by design. National credit scores are designed to work reasonably well across thousands of institutions, but not optimally for any specific one. That becomes clear when you compare regional differences. A lender in an agricultural region may see very different income seasonality and cash-flow patterns than a lender in a major metro area-differences that a universal score was never designed to capture."

Credit scores originated in the 1950s as a simplified shortcut for complex lending decisions. Legacy scores use a narrow, lagging slice of data, allowing single events to outweigh long-term financial discipline and obscuring volatility and context. Advanced machine learning models now enable lenders to extract richer intelligence from existing data, providing nuanced, institution-specific risk predictions with rigorous testing and governance. These models can update in real time, account for regional and seasonal cash-flow differences, and better align underwriting with actual consumer behavior. The shift improves risk assessment granularity, reduces lender exposure, and can expand access for creditworthy borrowers.

Read at Fast Company