Alternative Credit Data

Alternative credit data looks beyond conventional credit bureau data, which typically focuses on long-established credit activities such as credit card, mortgage, and auto lending to include both life event insights like professional licenses, asset ownership and public records, as well as modern credit seeking behaviors from markets like online lending and short-term lending. These non-traditional credit behaviors, when paired with the traditional credit behaviors currently used in conventional credit scores, deliver a comprehensive view into a consumer’s creditworthiness. 

While this might seem like a new approach to credit risk assessment – particularly when leveraged on consumers who can be scored by traditional credit assessments – the use of alternative data to provide a comprehensive view into credit risk is not a new concept. Today, many of the largest U.S. card issuers are using these insights to inform credit decisions on a range of different consumer segments, helping them drive portfolio growth while tightly managing risk across the credit spectrum.  

Alternative credit data provides a broader view of a consumer’s credit behavior beyond financial services accounts into other industries and life events with implications on consumer credit stability. This comprehensive and current visibility into consumer risk allows you to deliver smart, optimized offers for credit and services.

Having a broader view of a consumer’s credit behavior allows you to meaningfully improve credit decisions and identify more applicants which meet current credit criteria. This is extremely critical in a lending environment where competition for new customers is fierce and a growing number of consumers are “credit invisible” — meaning they don’t have an established credit file with the national consumer reporting agencies.

About one in 10 adults in the U.S., approximately 26 million Americans, is considered credit invisible. An additional 19 million consumers have “unscorable” credit files, which means their credit files lack sufficient credit history or enough recent information to calculate an effective credit score.¹

The lack of credit history or a traditional credit score falling on-or-below a lender’s margin does not necessarily equate to unacceptable credit risk, however. When alternative credit data is combined with advanced analytic models, the result is a credit assessment that is both highly predictive and strongly uncorrelated with traditional credit scores – meaning it brings new information to the table which often adjusts the assessment of an applicant. This incremental, predictive evaluation can allow you to form the comprehensive picture of an individual’s creditworthiness needed to improve credit decisions across the customer lifecycle and credit spectrum – notably identifying creditworthy marginal and invisible applicants who may have otherwise been declined.

An improved understanding of consumer credit risk can help you see opportunity where others simply see risk.

Alternative credit scores may uncover significant changes in creditworthiness which can be missed by traditional credit scores. In addition to providing insight into consumer credit risk during account opening, alternative credit data can also be used to monitor changes in creditworthiness within a customer population. Alternative credit data can provide early indications of financial instability among prime customers and detect signs of recovery to help identify marginal consumers with potential for growth. Consumer creditworthiness changes over time, and alternative data allows you to see more of these changes and see them sooner for more predictive credit decisions across the customer lifecycle.

The key to better lending decisions is incremental predictive insights. Using scoring models and attributes which tap into proven and reliable sources of alternative credit data allows you to:

• Improve credit decisions on the margin, by more effectively evaluating borderline applicants
• Grow approval rates, by identifying off-margin consumers underestimated by credit bureau scores
• Seize opportunities to turn credit invisibles – both thin-file and no-file consumers — into valuable customers
• Improve account opening rates and profitability by extending more accurate pricing and terms to consumers across the credit spectrum who have been misclassified by traditional credit assessments
• Enhance portfolio management processes and monitor changes across the customer lifecycle 

It is important to remember that credit solutions have no value – no matter their predictive strength – if they can’t pass through today’s stringent model governance and compliance assessments. All LexisNexis credit risk solutions are purpose-built to address modern regulatory requirements – including comprehensive fair lending standards and regulations compliance reviews.

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1. Consumer Financial Protection Bureau Data Point: Credit Invisibles. https://www.consumerfinance.gov/data-research/research-reports/data-point-credit-invisibles/