Alternative data can be a useful tool in expanding credit access. Alternative data is Fair Credit Reporting Act compliant information that is not included in traditional credit. Examples include telco and utility data, which includes telecommunications, pay TV, home security, and utility payment history, as well as speciality finance data, which includes short term installment loans, rent-to-own information, and other non-traditional lending attributes.
Leveraging alternative data could score up to 32% of previously unscorable consumers. This is important, as roughly 76 million Americans may struggle to access credit because they are credit invisible.
Credit invisibility is expensive, as it leads to higher interest rates. For example, when compared to a prime score, a subprime credit score could rack up an extra $32,923 in interest on an average 30-year mortgage.
Equifax is a company that combines alternative data with its patented AI to help consumers raise to better credit bands. This method could qualify an incremental 2 million consumers for prime and super prime offers. For example, with telco data, 66% of individuals experienced a 10 point positive change to their credit score. This can make a huge difference in an individual’s financial stability.
Obtaining a better credit score can reduce interest costs and open opportunities. Alternative credit is one avenue to boost credit scores and enjoy the subsequent benefits.
