Lending Perspectives: When will alternative data fulfill its promise?

first_img continue reading » Any way to increase lending to 30 to 50 million consumers with limited or no credit will get the industry’s attention.As a result, there’s a lot of chatter in the industry about the potential value of alternative data for making lending decisions and finding ways to expand the credit box. Companies like LexisNexis, Factor Trust and even the mainstream credit bureaus have databases of alternative data that includes payments for rent, utilities and payday loans. Cell phone, email and device information also can assist in the verification of applicant identities.Yet my credit union has looked into alternative data and frankly, “It’s got a long way to go, baby.” There are significant challenges to collecting rent data. For example, the cost and burden of reporting data on smaller complexes will certainly exceed the value to landlords of doing so. The integrity of the data may also come into question—how well would the information provided accurately reflect how people have paid their rent? We have seen an amazing increase in the amount of credit disputes in the last decade as it’s been the easy way to remove derogatory information from a (persistent) consumer’s credit bureau. All one has to do is repeatedly dispute negative information and wait for the lender to respond within 30 days. If the lender doesn’t respond in that window, the negative information is removed.Another concern about the possibility of using alternative credit data is whether there truly will be increased lending to the underserved. For every consumer that pays rent well and has little credit, will there be another with a similar traditional credit file that is harmed even more by his or her history of utility, cell phone and rent payments? ShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblrlast_img

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