Alternative Credit Data Is Nothing New

by Patrick Reemts

Patrick Reemts

With all the news lately around alternative credit scores, you might think the use of alternative credit data  is a new concept in consumer credit metrics. Surprisingly, this is not the case. In fact, the alternative credit space was pioneered by companies like RiskWise, L2C and our folks here at ID Analytics. In fact, we’ve been supplying alternative credit information to our customers since 2007.

What is alternative credit data anyway?

Conventional credit scores are based on consumer data taken from credit card, mortgage, and auto lending records.  In addition to considering this type of conventional credit data, ID Analytics also utilizes proprietary alternative insights from the wireless, banking, peer-to-peer lending, checking and savings, and the sub-prime markets, plus address change histories, to deliver a precise and unique view into a consumer’s credit risk and worthiness. This is what we call ‘alternative credit data’.

Why is alternative credit data getting so much attention now?

While ID Analytics has been providing alternative credit scores for its customers for nearly a decade, there’s a larger industry trend as to why lenders need alternative data sources. In fact, 63 percent of millennials (ages 18 to 29) don’t have a credit card, according to a survey commissioned by Bankrate and compiled by Princeton Survey Research Associates International. With the growing number of thin-files, and individuals with complicated credit histories – particularly following the Great Recession, lenders have been turning to alternative credit data to better evaluate individual’s credit risk and worthiness.

Over the last few years lenders have been focused on increasing their lending or services by employing alternative risk products across the credit spectrum. For example, ID Analytics currently provides alternative risk solutions to major players across several industries including financial services, telecommunications, auto and subprime lending. Very recently we’ve seen an increase in assessments of alternative credit information in the automotive lending industry, due to the large consumer demand for vehicle purchasing, and a willingness to explore options for financing thin-file and subprime customers.

How it benefits consumers

ID Analytics’ alternative credit solutions are leveraged by lenders to augment credit decisions affecting every credit-active U.S. consumer, including those in the underbanked, thin-file, and no-file categories, and even for consumers with very good credit history.

Consumers with little to non-active credit history benefit from alternative credit scores, but the really meaningful benefit comes into play for those who suffered a hardship through the recession – they are afforded a “second look” by lenders using alternative data solutions, like Credit Optics® and ID Score-Action. To learn more about the benefits of alternative credit data, read our Harnessing Traditional and Alternative Credit Data white paper.

Patrick Reemts is Vice President of Credit Risk Solutions at ID Analytics, LLC.