At A Glance
Alternative data is credit-related information that goes beyond traditional credit reports helping lenders gain deeper insights into how consumers manage their financial lives.Traditional credit data has long been the end-all-be-all ruling the financial services space. Like the staple black suit or that little black dress in your closet, it’s been the quintessential go-to for decades.
Sure, the financial industry has some seasonality, but traditional credit has been reigned supreme as the reliable pillar. It’s dependable. And for a long time, it’s all there was to the equation.
But as with finance, fashion and all things – evolution has occurred. Specifically, how consumers are managing their money has evolved, which calls for deeper insights that are still defensible and disputable.
Alternative credit data is the new black. It’s increasingly integrated in credit talks for lenders across the country. Much like that LBD, it’s become a lending staple – that closet (or portfolio) must-have to – to leverage for better decisioning when determining creditworthiness.
What is alternative data?
Alternative data expands the traditional credit picture by incorporating additional, compliant insights that help lenders better understand consumer financial behavior.
In our data-driven industry, “alternative” data as a whole may best be summed up as FCRA-compliant credit data that isn’t typically included in traditional credit reports. For traditional data, think loan and inquiry data on bankcards, auto, mortgage and personal loans; typically trades with a term of 12 months or greater.
Traditional data vs. alternative data
While traditional credit data remains the cornerstone of credit decisioning, alternative data fills important information gaps that can help lenders better understand consumers with limited or evolving credit histories.
| Traditional data | Alternative data |
| Credit card accounts | Rental payment history |
| Mortgage loans | Consumer-permissioned cash flow data |
| Auto loans | Income and asset verification data |
| Personal loans | Alternative financial services data |
| Credit inquiries | Expanded public records |
| Payment history on traditional loans | Bank account transaction insights |
By combining traditional and alternative data, lenders gain a more holistic view of financial behavior, enabling more confident lending decisions while helping expand access to credit for qualified consumers who may otherwise be overlooked.
Types of alternative data
Alternative data encompasses a range of non-traditional credit signals that provide broader visibility into how consumers manage their financial lives. Some examples of credit data sources include alternative financial services data, rental payment data, full-file public records and account aggregation. These insights can ultimately improve credit access and decisioning for millions of consumers who may otherwise be overlooked. Common types of alternative data sources include:
- Financial services data: Information related to short-term or non-bank financial products, such as payday loans or installment loans, which can offer insight into borrowing patterns and repayment behavior
- Rental payment data: Records of on-time or missed payments that demonstrate payment responsibility for consumers with limited traditional credit history
- Account-level data: Consumer-permissioned information that offers visibility into cash flow, balances, and transaction activity
- Expanded public records: Publicly available financial records around a consumer’s financial obligations and history
Why alternative data matters
Alternative data helps lenders address several challenges facing today’s lending environment.
Benefits include:
- Improving visibility into consumers with thin or limited credit files
- Expanding access to credit without increasing unnecessary risk
- Enhancing underwriting accuracy through additional financial insights
- Supporting financial inclusion initiatives
- Reducing friction through automated income and asset verification
- Creating better consumer experiences with faster lending decisions
As more consumers build financial lives outside traditional credit products, alternative data has become an increasingly valuable complement to traditional credit information.
Financial inclusion through better data
In this episode of our Ask the Expert series, Morehouse College’s Dr. Vaneesha Dutra joins Experian’s Corliss Hill to discuss how expanding consumer visibility can help lenders uncover growth opportunities while advancing financial inclusion.
How lenders use alternative data
Lenders leverage alternative data to enhance decisioning, improve risk assessment, and responsibly expand access to credit. Alternative or not, every bit of information counts. FCRA-compliant, user permissioned data allows lenders to easily verify assets and income electronically, thereby giving lenders more confidence in their decision allowing consumers to gain access to lower-cost financing.
From a risk management perspective, alternative credit data can also help identify riskier consumers by identifying information like the number of payday loans acquired within a year or number of first-payment defaults. Alternative credit data can give supplementals insight, through alternative credit scoring, into a consumer’s stability, ability, and willingness to repay that is not available on a traditional credit report that can help lenders avoid risk or price accordingly.
How Experian supports lenders
Experian helps lenders responsibly incorporate alternative credit data to gain deeper consumer insights while maintaining compliance and confidence in decisioning.
From closet finds that refresh your look to that LBD, alternative credit data gives lenders more transparency into their consumers, and gives consumers seeking credit a great foundation to help their case for creditworthiness. It really is this season’s – and every season’s – must-have.
