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Alternative Data: Bringing Credit Access to All Americans
March 12, 2024

Credit scores are often regarded as a financial reality for most people living in the United States. After all, they are required for many decisions involving large sums of money, such as buying a house, leasing a car, or even paying off an emergency loan. Any time that an individual needs to borrow money from a lending institution, such as a bank, their credit score is analyzed to see if the consumer is trustworthy enough to be expected to pay back what they are borrowing. 

Clearly, having a good credit score is essential for a lot of major life decisions, but surprisingly there are many people who struggle to present this information to lenders. 61 million are identified as having “thin files”, which is classified as having four lines of credit or fewer. Another 16 million are “credit invisible”, which means they don’t have a credit score to report at all. 

Most of the people in these categories fall into demographics that would obviously struggle to establish substantial credit history. For example, young people are not able to have their own credit scores until they are 18, so it is impossible for them to have a solid credit history. Recent divorcees or widowers, immigrants, and frequent debit card or cash users also make up a significant proportion of people with limited credit history. 

This can have serious repercussions for a person’s financial stability. 57% of Americans would not be able to pay an unexpected expense from their savings account alone, and would be hard pressed to find other methods of borrowing money without a decent credit score. They also experience much higher interest rates than their counterparts with a prime credit score, which can result in massive difference in payments over a long period of time. For example, over the course of a 30-year mortgage, a homeowner with a low credit score can end up paying an additional $30k in interest. 

Alternative data can be really helpful when it comes to leveling the playing field for potential borrowers. This data is not found in traditional credit reports, but still can accurately demonstrate someone’s ability to pay bills back on time. For example, alternative data can draw upon a consumer’s utility bill payment history and show that they are financially trustworthy. 91% of American adults have at least one utility bill in their name, so this can be a great method to expand access to credit across the United States.

Expanding Access to Credit with Alternative Data

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