• Benjamin Elliott

How Does Open Banking Credit Scoring Work? (+ 3 Major Benefits)

Updated: Oct 17

Open Banking has become a key part of the financial services infrastructure - including the way credit scoring works. With Open Banking credit scoring systems, financial institutions can access more insightful credit checks faster and more accurately. This can have an enormous impact on many different financial services.

Open Banking-enabled credit scoring uses automated access to banking data through APIs. This means that organisations can gain a more realistic picture of an individual's financial stability and the ability to verify their income and expenses more accurately.

So how exactly does Open Banking credit scoring work, and why is it such a game-changer? We’ll cover this in our complete guide below.

Open Banking Credit Scoring: An Overview

Figuring out creditworthiness is a complicated process that involves many different factors.

Traditional credit scoring considers the relevant finances of an individual. This includes things like income, loans, and accounts.

In reality, this isn't enough information to provide a complete picture of an individual's creditworthiness.

As a result of using this limited data, many individuals are rejected from accessing certain financial products. This means financial institutions run the risk of losing clients to the traditional credit scoring approach.

Open Banking credit scoring is a solution that provides more data and background information on an individual to better understand their true creditworthiness. As opposed to traditional credit scoring models, Open Banking credit scoring provides a “bigger picture” insight into a person's current financial situation.

Open Banking-enabled credit scoring recognises the person behind a loan application. This approach understands the complexities of day-to-day financial life and offers a more realistic take on a person's current situation.

How Open Banking Credit Scoring Works

Thanks to access to real-time smart financial data, Open Banking can be used to improve and automate credit checks.

By offering financial institutions access to a wider pool of an individual's data, these institutions and lenders can gain a more diverse and realistic understanding of the individual's spending habits. This provides a clearer indication of their financial health in comparison to traditional credit scoring.

By using Open Banking information, lenders are able to make more informed decisions about applicants. This could allow someone to access a financial product where they would have been rejected before purely based on their credit score.

Not only does the Open Banking credit scoring approach provide greater insights into individuals' financial health, but it also enhances the credit scoring digitisation process. This makes loan applications faster and easier and offers a competitive advantage to those offering digital services.

By digitising and automating their processes, lenders can streamline the way they handle loan applications, increase review times, and cut down on manual processes. The results are faster operations performed with greater accuracy.

This doesn’t only improve business processes but also enhances the customer experience. In today’s world, it’s important that organisations are able to offer excellent digital processes.

Why Open Banking Credit Scoring is Important

Using Open Banking for understanding creditworthiness offers lenders and applicants a few major advantages. Here are four of the biggest benefits.

1. Open Banking Makes it Easier to Understand Spending Behaviour

In order to perform a meaningful risk assessment, you will need to assess an individual's current financial situation.

Traditional credit scoring models often look at financial statements from months, or even years ago, which isn’t always relevant to a person's current financial health and risk profile.

Open Banking, on the other hand, provides access to real-time financial data. This approach offers a better understanding of an individual's current financial position and spending habits.

Smart data analytics and AI algorithms can process this transactional data in real-time to identify patterns and understand the full story behind the transactions.

This gives lenders a better idea of how liquid a loan applicant's finances really are. This means that loan application decisions can be made faster while being based on a more precise scoring system.

2. Open Banking Allows for More Personalised Loans

Open Banking credit scoring can reduce the risk for both lenders and loan applicants by allowing lenders to create solutions that are more personalised to the applicant's financial situation.

This is because Open Banking takes the applicant's entire lifestyle into consideration, and not just their income statements. This allows leaders to better tailor loan offers to match customers, which helps them access a product that makes more sense for their financial scenario.

3. Open Banking Can Lower Interest Rates

By accessing a more holistic understanding of customers' financial capabilities, more lenders can offer more suitable products to customers. When there’s less risk involved, lenders are able to lower their interest rates.

This is because there is less risk of customers defaulting on loan payments.

4. Open Banking Enhances Lending Opportunities

One of the biggest advantages of Open Banking is that it creates more opportunities for competition. This means more digital financial services.

Through this, Open Banking can help loan providers to improve their customer satisfaction and demand. And thanks to technology and automation, lenders can better meet this increased demand.

Unlike manual assessment processes, digital lending offers a lot more opportunities. This can help lenders scale their businesses without having to rely on human capital.

Thanks to process automation, customers gain a better experience and lenders can optimise the way they manage their business.


Open Banking provides all kinds of new solutions to the world of finance - including credit scoring. With Open Banking credit scoring, organisations can perform more meaningful credit checks more efficiently.

This can make a major difference to the kind of financial opportunities individuals and businesses can access.

Open Banking provides a more reliable picture of financial health, which can optimise the way a lending company operates and what kinds of products it can offer. It also improves opportunities for loan applicants.

This is just one of many examples of how Open Banking is changing the way financial institutions operate.

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