Question

Discount-store shoppers may soon get an unexpected benefit: better odds when applying for personal loans from Discover Financial Services. Discover, best known for its credit cards, plans to use artificial intelligence to assess hundreds of unusual characteristics about personal-loan applicants in an attempt to get its rising losses under control. A history of discount-store shopping, for example, will boost an applicant's chances of getting a personal loan, according to people familiar with the matter, while writing the full legal name of an employer on a loan application will lower it. Applicants who report high incomes will be flagged as potentially more risky, the people said.

Do you think this will be an accurate way to determine credit? Fair?

Answer 1

A discount store is a shop that sells goods at less than the normal retail price.

A shopping in discount stores shows a money saving attitude and a persons concern for money. It is also possible that a person end up saving more money and in a better position to repay credit card payments.

Reporting high income may also show that rather than saving more a person is more towards spending it and does not manage finances properly and is likely to default more.

It is clear from many studies that a poor person cares for money more than a upper income earning person. Eg. Grameen bank micro credit success case in Bangladesh.

This is a good way to analyze person's financial credibility but may not be sufficient as there are other factors like job security, contingency, how many members in a family decide and change financial behavior of a person.