Most lenders think alternative data improves financial inclusion – survey

Consumers were also found willing to provide additional information if it increases chances of approval or better terms

By Francis Monfort

25 May 2018

A majority of lenders believe factoring in alternative credit data allows greater access to credit, according to first-ever State of Alternative Credit Data report released by Experian.

Eighty percent of lenders rely on information beyond the credit report when making a credit decision.

Additionally, 71% of lenders said they think consumers would allow access to their data for lending decisions if they are empowered to turn it on and off. Responses to the lender survey were collected across industries including banks, credit unions, auto finance, mortgage, bankcard issuers, and utility providers.

Meanwhile, more than half of consumers said their credit score would improve if items such as their utility or mobile phone payment history were included. If given a choice, many consumers would prefer that alternative credit data sources such as utility bill payment history (48%), savings/checking account transactions (39%), and mobile phone payment history (38%) be evaluated in their credit history.

While most consumers said their credit score accurately represents their creditworthiness, the survey also revealed that 47% of them believe they are better borrowers than their score represents. Experian also found that 56% of consumers agree or strongly agree that allowing lenders to access their financial data digitally would be more convenient than collecting hard-copy documents.

Experian noted that circumstances such as having no credit history or having a “thin” credit file bar many Americans from accessing credit and sometimes make they pay more for credit. Due to having less than five items in their traditional credit histories, about 25% of consumers are considered “thin file.” Experian said these customers will benefit from alternative credit data as these provide more insights to thicken their file and expand their access to the credit ecosystem.