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Is credit history getting in your way of using financial tools?
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Is credit history getting in your way of using financial tools?

Loan applications get rejected for several reasons, and one of those is having a poor credit history. Although there are many factors considered by banks and lenders, the borrower’s credit score gets a lot of weight in getting a thumbs up on his loan application.

In the latest survey by The Federal Reserve Bank of New York’s Center for Microeconomic Data on credit access, the rejection rate in 2018 was higher than the previous year. The survey indicates an 18.5 percent of rejected applications, trailing on a two-year average.

Despite every lending institution claiming to have the best credit terms, fees and accessible services for everyone, almost 32% of good credit history applicants still get refused.

Small business owners also go through the same ordeal when applying for a business loan.  Banks evaluate business loan applications with a different set of criteria. However, a bad credit history still has one of the most significant impacts on the application that could result in a decline.

Why your credit application can get rejected?

There are many reasons for not being able to get a loan, but lenders and banks often have similar motives to why they turn down some of these applications:

  • Bad or no Credit history at all – While a bad credit history can ruin your loan application, having no credit records can be more disruptive.
  • Inconsistent cash flow – Banks prefer small and medium businesses that show consistent revenue stream every month.
  • Debt-to-Income Ratio – Banks use this by comparing how much you earn and the amount you are paying on your debts to see if you can handle payments once the loan is approved.
Is there anything that can fix this issue?

Over the years, numerous efforts have been made to help out unbanked people and businesses deprived of the access to financial services.

According to a report by Business Insider, there are around two billion people worldwide who are unbanked – people who do not have their bank accounts, nor electronic mobile access to financial institutions.

This dilemma gave rise to the modern-day microfinance solutions backed by blockchain. Projects like AssetStream arise for issuing this problem and for helping the poor and unbanked disrupt the traditional view on their financial capabilities.

How does blockchain-based micro-financing work?

More than a decade ago, we were introduced to the birth of digital currencies and its underlying technology, the Digital Ledger Technology (DLT), or blockchain. Seeing a lot of opportunities for Modern-day Microfinance institutions (MDMFI) to provide a better credit solution, blockchain technology has made its way into integrating with micro-financing which can potentially:

  • Create a new and innovative method of checking a borrower’s state
  • Build shared and trusted credit histories
  • Allow the sharing and support of confidential data more securely
  • Provides economical and swifter flow of funds

There you go! Having no credit history or bad credit history is no longer an issue if you’re ready to enter the world of future micro-financing.

Ready to experience?

There’s a promising future for everyone who dreams of a more decentralized and customized banking system. Micro-financing is in the blockchain industry, and if you’d like to learn more, AssetStream’s whitepaper can deliver full information for your curious mind.

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