Artificial Intelligence and the Future of Credit Scoring in FinTech: A Paradigm Shift

Abstract

Credit scoring plays a vital role in the credit-related financial decision-making process. Still, traditional models currently face challenges of limited data sources, human bias, and static risk assessment methods that lead to inaccurate creditworthiness assessment. IntegratingAI- Artificial intelligence in the financial technology (fintech) sector has revolutionized this process, enabling real-time and dynamic credit risk assessment using machine learning, NLP, and alternative data sources—such as transaction behavior, social media analytics, and utility payment records. This study analyses the transformative role of AI-based credit scoring in improving predictive accuracy, operational efficiency, and financial inclusion. Additionally, it discusses key challenges like legal compliance, data privacy concerns, algorithmic bias,and ethical complexities of automated decisionmaking. Employingadescriptive research methodology, this research provides a detailed analysis of the potential impacts of AI-driven credit assessment frameworks and advocates the adoption of transparent, accountable, and ethically responsible AI-based credit scoring systems.