Using Alternative Data to Increase Credit Access

Alternative data can help businesses make better decisions by presenting a broader view of consumer behavior. Data like this gives insight into what may be happening outside the traditional consumer credit file.

Alternative data is Fair Credit Reporting Act compliant information that is not included in traditional credit, which could score up to 32% of previously uncreditworthy consumers. Examples of alternative data are speciality finance data that includes short term installment loans, rent-to-own information, and other non-traditional lending attributes and telco and utility data comprising telecommunications, pay TV, home security, and utility payment history.

About 76 million Americans have trouble accessing credit because they are either thin file (having four or less credit accounts on their credit file resulting in limited credit history) or credit invisible (does not have a traditional credit file). Usually one in three adults in the U.S. have thin files or are credit invisible. Many rely on higher-cost financial alternative services as about 61 million people have a “thin” credit file with four accounts or less while 16 million are considered credit invisible.

People who have little-to-no credit history are more likely those who are young or new to using credit, have recently immigrated, have not used credit for a long time, do not use credit accounts, are recently widowed or divorced, or are cash or debit card users. A subprime credit score could result in an additional $32,923 in interest in an average 30-year mortgage compared to a prime score. 57% of Americans usually cannot pay an unexpected expense from savings while one in three Americans have more credit card debt than emergency savings. Additionally, credit invisibility can bring higher costs, such as $400 more in interest for a $550 emergency loan over the course of three months, or $3,000 more in interest for a $10,000 used-car loan over four years.

Using alternative data could shift 8.4 million more U.S. consumers into scorable credit bands. This means 6.5 million people could become scorable when using utility and telco data while layering specialty finance data alongside the utility and telco data could help an additional 1.9 million people. With telco data, many individuals experienced positive credit score changes.

With alternative data, more than 6 million U.S. consumers will be able to gain access to more financial opportunities.

Expanding Access to Credit with Alternative Data

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