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Alternative Data Could Help Some Consumers Get Credit

On Behalf of | Jul 12, 2018 | Consumer Protection

Believe it or not, it has been over 75 years since two mathematicians named William Fair and Earl Isaac created the credit scoring system, more commonly known as Fair Isaac or FICO, which has been the main tool for valuing your credit standing since the mid 1950s. While this model maintains its position as the standard by which credit is determined, other data that is typically not reported can soon serve to help consumers in need of a better credit standing.

The FCRA and the FICO Score

After struggling to perfect this scoring model, by the 1970s, with the inception of the Fair Credit Reporting Act (“FCRA”), eventually creditors, lenders, insurance brokers, landlords, and employers regularly started to use FICO to determine your eligibility for credit.  Without a decent FICO score, consumers find it next to impossible to get a loan, mortgage or even insurance at a reasonable rate.

Other Options for Credit Data

FICO has been the only scoring model since the 1950s and permits just over 50% of consumers to receive credit based on their scores.  Because of the large portion of consumers living without credit, financial experts have looked to explore other options, such as alternative credit data, that could help more consumers obtain approval for credit at a reasonable rate.  If you have poor credit and low income, alternative credit data can help.  This data includes rental payments, utility bills, cellular bills, etc. that lenders could review to aid them in making a decision on whether or not to lend you credit.

Alternative Credit Data and Consumers With No Credit

Because roughly 45% of the American population currently suffers from little, no or poor credit standing, alternative credit data would aid this large number of people in obtaining favorable loans.  Reviewing what may be considered an invisible consumer’s payment history may provide lenders with an opportunity to loan money to a consumer it may have previously thought unfavorable.

Adding Alternative Credit Data to the FICO Score

With alternative data scoring models are on the rise, 80% of lenders are still using FICO to make a decision on whether or not to lend a consumer credit, but that same amount confessed to also using an alternative data source in conjunction with FICO’s scoring model.  The use of alternative data will allow the almost 60% of consumers who believe their FICO score does not accurately reflect their credit worthiness to become borrowing consumers in the financial marketplace.

If you are in need of advice or assistance with your credit report contact SmithMarco P.C. for a completely free case review.