How alternative consumer credit data increasingly supports lending decisions
As lenders make an effort to reach out to a wider audience, the use of alternative credit data is becoming more influential in their decisions, for BNPL and longer-term conventional loans.
As banks, credit unions and other lenders continue to vie for new borrowers, markets and opportunities, many have discovered conventional means of credit scoring and risk don’t necessarily hold up.
Hence, most lenders looking to grow their lending business are embracing so-called “alternative credit data” to approve up-and-coming borrowers. These alternative data represent factors generally not included or weighted heavily in national credit reporting agencies (NCRA) formulas. That could include a potential customer’s income and employment information, inquiries and payment records to ‘specialty’ lenders like payday lenders, utility and mobile payment history, rental payments, peer-to-peer lending history and social media profiles.
Kevin King, vice president, credit risk and marketing at LexisNexis Risk Solutions, is seeing a fast uptick in the use of Fair Credit Reporting Act (FCRA) — actionable alternative credit data — which meet regulatory standards for inclusion in credit assessments but aren’t currently included in traditional credit rating solutions such as FICO or VantageScore.
“This year, financial institutions are pulling approximately 800 million to 900 million alternative credit consumer reports in the U.S. for underwriting purposes, excluding marketing and account servicing use cases,” says King. “Banks represent the most significant users of this data, although fintech lenders and BNPL users also heavily utilize it.”
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