Leveraging Alternative Data for Expansive Credit

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Alternative data can be a useful tool in increasing access to credit.  Roughly 76 million Americans are either thin file or credit invisible.  Having a thin file means that an individual has limited credit history, whereas being credit invisible means that an individual does not have a traditional credit file.  Thin files and credit invisibility make it challenging to access credit. 

Credit invisibility is costly to consumers, especially for those without emergency savings.  For example, 57% of Americans could not pay an unexpected expense from their savings.  Roughly 25% turn to credit cards to cover these expenses, but this can lead to debt.  In fact, 1 in 3 Americans have more credit card debt than emergency savings. 

This cost compiles due to higher interest rates for credit invisible consumers.  Compared to borrowers with prime credit scores, borrowers with subprime credit scores pay $400 more in interest for a $550 emergency loan over three months. 

Luckily, alternative data can help more individuals obtain a strong credit score.  It does so by taking into account information that is not included in traditional credit, such as specialty finance data (short term installment loans and rent-to-own information) and telco and utility data (telecommunications, pay TV, home security, and utility payment history). 

Equifax helps consumers leverage this data, and predicts that alternative data can bring 8.4 million more Americans into a scorable credit band. This is a significant number, showing how alternative data can make a big impact on expanding financial opportunities for Americans.

Expanding Access to Credit with Alternative Data