The Importance of A Robust Credit History and Alternative Data

Last Updated:
March 13, 2024
Author:
Brian Wallace

Credit scores are the most widely used way for businesses to determine if a consumer is trustworthy. With a sufficiently high score and good credit history, these consumers can go on to qualify for loans, mortgages, new credit cards, and much more that is required to succeed in today’s world.

Unfortunately, 1 in 3 American adults are facing challenges when trying to access credit, due to either thin files or being credit invisible. There are 61 million Americans that have a thin file, meaning that the consumer has less than four credit accounts on file, contributing to a limited credit history. There are 16 million Americans that are credit invisible, meaning that they don’t even have any form of a traditional credit file. This is where alternative data can make a big difference.

 

Conclusion

Those that fall into these categories of having little to no credit history are more likely to come from certain backgrounds. These backgrounds can include being young, being recently widowed or divorced, being a recent immigrant, or just generally having never used credit before. This can ultimately contribute to higher costs in the long run- a subprime credit score can end up costing a homeowner an additional $32k in interest over the course of a 30 year mortgage. They would also have to pay $400 more in interest for a $550 emergency loan over 3 months and $3000 more in interest for a $10000 used car loan over 4 years. Therefore, leveraging alternative data that goes beyond traditional credit reports can help save millions of Americans from a pressing financial situation in the future.

Expanding Access to Credit with Alternative Data

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