Alternative data: Offering hope for financial inclusion

While credit scores may have a central role in deciding who qualifies for a given financial product at specific terms, let’s face it: The current credit system works against a disproportionate population of lower-income consumers who don’t even have enough credit data to make a fair determination, much less have access to alternative data tools.

In the effort to better improve lower-income consumer access to credit with better, more realistic terms, such opportunities remain with credit unions that can leverage alternative data not found in traditional credit reports.

So what consumers are we talking about? By demographic, these consumers are disproportionately individuals of color who, by circumstance or choice, go about their daily lives predominantly using cash. Without the use of credit, their credit score barely exists, if at all, or they have subpar scores.

Situations like this can cause compound and historic inequities, disallowing those consumers from accessing true generational credit- and wealth-building opportunities through other financial products like homeownership, auto loans, or credit cards. About 54 percent of Black Americans report having no credit or a poor-to-fair credit score (or any score below 640), according to a 2022 Credit Sesame survey of 5,000 U.S. adults. Roughly 41 percent of Hispanic Americans also reported falling into this category.


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