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2023 State of Alternative Credit Data

November 16, 2023 by Laura Burrows

Over the past few decades, the financial industry has gone through significant changes. One of the most notable changes is the use of alternative credit data1 for lending. This type of data is becoming increasingly essential in consumer and small business lending. In this blog post, we’ll explore the importance of alternative credit data and the insights you can gain from our new 2023 State of Alternative Credit Data Report.

Benefits and uses of alternative credit data and alternative lending

Alternative credit data and alternative financial services offer substantial benefits to lenders, borrowers, and society as a whole. The primary advantage of alternative credit data is that it provides a more comprehensive and accurate credit history of the borrower. Unlike traditional credit data that focuses on a borrower’s financial past, alternative credit data includes information from non-traditional sources like rent payments, full-file public records, utility bills, and income and employment data. This additional data allows you to gain a better understanding of financial behavior and assess creditworthiness more accurately.

Alternative credit data can be used throughout the loan lifecycle, from underwriting to servicing. In the underwriting phase, alternative credit data can help lenders expand their pool of potential borrowers, especially those who lack or have limited traditional credit history. Additionally, alternative credit data can help lenders identify risks and minimize fraud. In the servicing phase, alternative credit data can help lenders monitor financial health and provide relevant services and an enhanced customer experience.

Alternative lending is critical for driving financial inclusion and profitability. Traditional credit models often exclude individuals who have limited or no access to credit, causing them to turn to high-cost alternatives like payday loans. Alternative credit data can provide a more accurate assessment of their ability to pay, making it easier for them to access affordable credit. This increased accessibility improves the borrower’s financial health and creates new opportunities to expand your customer base.

“Lenders can access credit data and real-time information about consumers’ incomes, employment statuses, and how they are managing their finances and get a more accurate view of a consumer’s financial situation than previously possible.”

—Scott Brown, President of Consumer Information Services, Experian

State of alternative credit data

Our new 2023 State of Alternative Credit Data Report provides exclusive insight into the alternative lending market, new data sources, inclusive finance opportunities and innovations in credit attributes and scoring that are making credit scoring more accurate, transparent and inclusive. For instance, the use of machine learning algorithms and artificial intelligence is enabling lenders to develop more predictive alternative credit scoring models and enhance risk assessment. 

Findings from the report include:

  • 54% of Gen Z and 52% of millennials feel more comfortable using alternative financing options rather than traditional forms of credit.2
  • 62% of financial institution firms are using alternative data to improve risk profiling and credit decisioning capabilities.3
  • Modern credit scoring methods could allow lenders to grow their pool of new customers by almost 20%.4

By understanding the power of alternative credit data and staying on top of the latest industry trends, you can widen your pool of borrowers, drive financial inclusion, and grow sustainably.

1Whenwe refer to “Alternative Credit Data,” this refers to the use of alternative data and its appropriate use in consumer credit lending decisions, as regulated by the Fair Credit Reporting Act. Hence, the term “Expanded FCRA Data” may also apply in this instance and both can be used interchangeably.
2Experian commissioned Atomik Research to conduct an online survey of 2,001 adults throughout the United States. Researchers controlled for demographic variables such as gender, age, geographic region, race and ethnicity in order to achieve similar demographic characteristics reported in the U.S. census.The margin of error of the overall sample is +/-2 percentage points with a confidence level of 95 percent. Fieldwork took place between August 22 and August 28, 2023. Atomik Research is a creative market research agency.
3Experian (2022).Reaching New Heights with Financial Inclusion
4Oliver Wyman (2022).Financial Inclusion and Access to Credit