Using Alternative Credit Data for Financial Inclusion & Scalable Growth

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.

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.

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.