When Lenders Use Alternative Credit Data, More Consumers Are Approved

Most lenders use standard credit report data to approve, or deny, consumers credit. The problem is, some perfectly credit-worthy people get left out in the cold. A new study sheds light on some new solutions.

Credit bureau Experian, at its 37th annual Vision Conference, announced the launch of its first-ever State of Alternative Credit Data report, examining lender and borrower perceptions about using alternative data for credit decisions.

The study found that 80 percent of lenders rely on a credit report plus additional information when making a credit decision.

More than 50 percent of consumers believe that including items like their utility or mobile phone payment history would have a positive effect on their credit score.

A “Thin” Credit File Doesn’t Necessarily Indicate a Risky Borrower

Many Americans face barriers to accessing credit and sometimes pay more for credit for several reasons, including having no credit history or having a credit file that’s too “thin.”

Approximately 25 percent of U.S. consumers are considered “thin file” because they have fewer than five items in their traditional credit histories. Alternative credit data is crucial to benefit thin-file consumers, providing more insights to thicken their file and expand their access to the credit ecosystem.

Key survey findings

  • If given a choice, many consumers would prefer that alternative credit data sources such as utility bill payment history (48%), savings/checking account transactions (39%) and mobile phone payment history (38%) be evaluated in their credit history.
  • 71% of lenders believe consumers increasingly will allow access to their data for lending decisions if they are empowered to turn it on and off.
  • 47% of consumers believe they are better borrowers than their credit score represents, but most consumers believe their credit score accurately represents their creditworthiness.
  • 56% of consumers agree or strongly agree that allowing lenders to access their financial data digitally would be more convenient than collecting hard-copy documents.

Always Check With Your Credit Union

Credit unions have always taken a more holistic approach to lending. They look at the whole person, not just the credit file. Credit unions do this because they are local institutions that lend to member – each of whom is a part-owner of the credit union.

So, if you are frustrated by a lack of attention and respect from big lenders, join a credit union. You just might find solutions that fit your needs.

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