Survey indicates alternative data gaining acceptance in credit decision-making

A new report that examines lender and borrower perceptions about the use of alternative data in credit decision-making was released this month by Experian. The State of Alternative Credit Data report found that 80 percent of lenders rely on a credit report plus additional information when making a credit decision.

Borrowers who face barriers to credit and sometimes pay more to access it because of their credit history are the target for alternative credit data. According to the study, more than 50 percent of consumers believe utility or mobile phone payment history could have a positive effect on their credit score and should be factored into credit decision-making.

“Alternative credit data is crucial to benefit thin-file consumers, providing more insights to thicken their file and expand their access to the credit ecosystem,” the Experian report stated.

“We recognize that a [credit] score is a mere snapshot in time,” said Alex Lintner, president of consumer information services at Experian. “We believe everyone deserves access to quality credit. When you give lenders the opportunity to layer on additional sources of data — like trended data, attributes, rent and utility payment history, and short-term loans — suddenly a much more comprehensive picture of the consumer emerges.”

Despite the intention of one in six lenders surveyed to use rental payment and utility data in the future to assist in making decisions, obstacles, including regulatory barriers, remain. To help address this issue, Congress is considering the Credit Access and Inclusion Act, which would amend the Fair Credit Reporting Act (FCRA) to clarify that utility and telecommunications companies may report positive credit data such as on-time payments. The legislation, which passed the House of Representatives in February, is being debated by the Senate.

Other findings of the survey include:

  • If given a choice, a number of consumers would prefer that alternative credit data sources such as utility bill payment history (48% percent), savings/checking account transactions (39 percent) and mobile phone payment history (38 percent) be evaluated as part of their credit history.
  • Seventy-one percent of lenders believe consumers increasingly will allow access to their data for lending decisions if they are empowered to control access.
  • Nearly half of surveyed consumers believe they are better borrowers than their credit score might indicate.
  • Slightly more than half (56 percent) of consumers agree or strongly agree that allowing lenders to access their financial data digitally would be more convenient than collecting hard-copy documents.