First-ever State of Alternative Credit Data report says lenders believe factoring in alternative credit data allows greater access to credit, consumers willing to provide additional information if it increases chances of approval or better terms
SCOTTSDALE, Ariz., May 23, 2018 /PRNewswire/ — Experian®, at its 37th annual Vision Conference, today announced the launch of its first-ever State of Alternative Credit Data report, examining lender and borrower perceptions about using alternative data for credit decisions. The study found that 80 percent of lenders rely on a credit report plus additional information when making a credit decision. More than 50 percent of consumers believe that including items like their utility or mobile phone payment history would have a positive effect on their credit score.
Many Americans face barriers to accessing credit and sometimes pay more for credit for several reasons, including having no credit history or having a credit file that’s too “thin.” Approximately 25 percent of U.S. consumers are considered “thin file” because they have fewer than five items in their traditional credit histories. Alternative credit data is crucial to benefit thin-file consumers, providing more insights to thicken their file and expand their access to the credit ecosystem.
“While we are best known for the traditional credit scores we provide, we recognize that a score is a mere snapshot in time,” said Alex Lintner, president, Consumer Information Services, at Experian. “We believe everyone deserves access to quality credit. When you give lenders the opportunity to layer on additional sources of data — like trended data, attributes, rent and utility payment history, and short-term loans — suddenly a much more comprehensive picture of the consumer emerges.”
Key survey findings
If given a choice, many consumers would prefer that alternative credit data sources such as utility bill payment history (48%), savings/checking account transactions (39%) and mobile phone payment history (38%) be evaluated in their credit history.
71% of lenders believe consumers increasingly will allow access to their data for lending decisions if they are empowered to turn it on and off.
47% of consumers believe they are better borrowers than their credit score represents, but most consumers believe their credit score accurately represents their creditworthiness.
56% of consumers agree or strongly agree that allowing lenders to access their financial data digitally would be more convenient than collecting hard-copy documents.
Barriers to using alternative credit data
Despite the intention of one in six lenders surveyed by Experian planning to use rental payment and utility data in the future to assist in making decisions, obstacles remain. Regulatory barriers — especially at the state and local level — deter utility and telecommunications companies from furnishing on-time payment data to credit bureaus. To help address this issue, Congress is considering bipartisan legislation, the Credit Access and Inclusion Act, which would amend the Fair Credit Reporting Act (FCRA) to clarify that utility and telecommunications companies may report positive credit data such as on-time payments. The legislation unanimously passed the House of Representatives on Feb. 27, 2018, and is currently being debated by the Senate.
Each year, Vision combines in-depth research, cutting-edge technology and expertise from industry leaders to help Experian’s clients strengthen their balance sheets and plan for sustained growth. The 2018 conference sold out and runs May 20–23 in Scottsdale, Ariz.
Experian conducted two national online surveys with both credit providers and consumers regarding attitudes, awareness and use of alternative data.
For the lender survey, 276 partial and completed responses were collected across industries including banks, credit unions, auto finance, mortgage, bankcard issuers and utility providers. The lender survey was fielded between Jan. 23–Feb. 1. Sixty-two percent of participants are financial institutions. Nearly half (46 percent) of survey respondents serve in executive leadership roles. One-third work for organizations that reported asset sizes that exceed $1 billion.
For the consumer survey, Experian conducted a nationwide online survey of 540 respondents balanced to the U.S. Census. An additional oversample of 146 consumers was also gathered to provide insights at the generational level. The survey was fielded March 13–19, 2018.
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