How Upstart's Credit-Quality Issues Could Cut Into Growth This Year
The whole premise of Upstart's (NASDAQ: UPST) business model is that it has developed underwriting algorithms using artificial intelligence that can assess the credit quality of borrowers better than more traditional credit scoring methods such as Fair Isaac's FICO scoring method. Upstart's goal is to open up access to borrowers who would normally be turned away from traditional financial products but who are actually creditworthy borrowers, which would help banks and other financial institutions generate more volume while maintaining or reducing defaults. However, credit quality in more recent Upstart loans has started to deteriorate and spook investors at a precarious time for the economy when many expect to see a recession within the next 12 to 24 months.
If things keep going this way, Upstart may continue to see pressure on its growth this year and maybe next. Here's why.
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Source Fool.com
