Alternative data, or information not found in traditional credit reports, could score up to 90% of the previously unscorable customers. Nearly half of these customers could then be scored as prime or near-prime borrowers. All it would take is adding consumer permissioned data on bank transactions, rental payments, and utility payments to the credit score calculation.
Who in America is currently credit invisible? Twenty-five million adults in the country lack any credit score. Sixty-seven million more have a thin credit file, with four or fewer accounts. Those with little to no credit history are more likely to be young, have recently immigrated to the US, be Hispanic or African-American, not use credit accounts, or be recently widowed or divorced. Almost half of this population makes under $25,000 a year.
Credit invisibility can cost individuals dearly. A subprime credit score could bring an additional $32,923 in interest payments onto an average 30-year mortgage compared to a prime score. Credit invisibility causes Americans to pay higher interest rates on personal loans and generates higher premiums on their auto, home, and rental insurance. Every aspect of one’s financial life is touched by credit score, and the current method of calculating credit score leaves too many people in the dust.
Leveraging alternative data could move 20 million more US consumers into scorable credit bands. This move would allow 18% of credit thin or credit invisible consumers to qualify for prime or near-prime offers. When considering the forms of alternative data that could be used, bank transaction data alone could reduce the credit unscorable population by 50%. 9 million more consumers could become scorable by using consented telecom and utility data. 7.5 million would move into prime or near-prime once telecom and utility data are added to the calculation.
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Last Updated on December 21, 2021.