The Use of Alternative Data in Credit Reporting

Credit ratings are the most important instrument used by companies to evaluate the financial reliability of their customers. It can determine someone’s eligibility for credit cards, loans, mortgages, and even whether they are approved to live in an apartment. Having a good credit score is essential for modern-day success. Therefore, it is extremely unfortunate that a third of adult Americans are lacking credit history completely or have a thin file. Less than four credit accounts make up the narrow credit files of almost 61 million Americans and 16 million American are considered credit invisible since they do not have a typical credit file. 

People who have little or no credit history typically come from particular backgrounds, such as young people, people who have recently been divorced or widowed, recent immigrants, or people who have never used credit. These people stand a lot to gain from companies beginning to use alternative data in their credit evaluations. Alternative data is information that goes beyond the standard credit report but still adheres to the Fair Credit Reporting Act. This strategy may make credit more accessible, reduce expenses, and ease financial strains for people who are currently suffering from low or non-existent credit scores.