Using Alternative Credit Data for Financial Inclusion & Scalable Growth

Aug 1, 2022

A key component of financial services is access to credit. Credit is at the foundation of financial growth, but for many credit-constrained, historically disadvantaged and underserved consumers, simply establishing (or improving) a credit score is challenging.

Worldwide, 1.7 billion adults lack access to basic financial services1, critical to day-to-day tasks like online payments, mobile deposits, preparing for emergencies (“financial shocks”) and more2.

The Credit Conundrum

Consumers who are credit invisible (no credit record with the NCRAs) or unscorable (limited or “too new” credit records) face a conundrum: they need a score to qualify, but to generate a score, they need to have borrowed before3.

An estimated 20% of U.S. consumers do not have a conventional credit score4. Also referred to as “no-file” and “thin-file” consumers5, this population includes disproportionate numbers of low-income households, young adults, consumers of color, immigrants, and the general population of renters6. For financial institutions (FIs), no-file and thin-file consumers present an opportunity to expand their market while supporting financial inclusion.

[SOLUTION] Driving ROI by Matching Consumers with the Right Products

Alternative Credit Data

Integrating supplemental, FCRA-compliant information into credit decisioning is a win-win for FIs7.

Alternative data sources like payments for utilities, telecommunications and rent (UTR) can be helpful to consumers trying to establish a credit score. Trended data from deposit and card accounts (e.g., payroll deposits, recurring payments, spending and withdrawal activity, average account balance, etc.) provides FIs with a clear picture of how applicants manage their finances on an ongoing basis8.

A recent study revealed when expanded data sets are combined with additional decisioning resources, an estimated 96% of applicants can be scored. This includes all conventionally unscorable consumers and 65% of credit invisible consumers. Plus, 6 million subprime consumers could potentially score higher, shifting to near-prime or better9.

Financial Inclusion & Scalable Growth

Consumer demand and regulatory pressure surrounding social responsibility show no sign of waning. In a survey of 300 senior financial services executives, almost half said their organizations plan to scale financial inclusion efforts over the next 6-12 months10.

The overall economy is more likely to flourish as more people gain access to the financial system11. Likewise, FIs benefit from new customer segments they can cultivate over the long term.

[BLOG] Project REACh:
Putting Credit Invisibility in the Spotlight

Improved technology is opening the door for FIs to strategically look at data that opens more doors to credit12.”

Ravi Loganathan, Chief Analytics Officer at Early Warning Systems

  1. Universal Financial Access by 2020
  2. 5 Reasons Why Financial Inclusion is Important
  3. The Use of Cash-Flow Data in Underwriting Credit
  4. Financial Inclusion and Access to Credit
  5. Building a Bridge to Credit Visibility Report
  6. UTR Data in Underwriting Credit
  7. Millions Could Get a Leg Up Financially if Credit Scores Included Alternative Data
  8. UTR Data in Underwriting Credit
  9. Driving Growth with Greater Credit Access
  10. Innovation in Financial Inclusion
  11. Digital Financial Inclusion: Why it Matters and What’s Driving Change
  12. Alt Data Sources Key to Improving Loan Access

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