Alternative data is essentially anything that falls outside of traditional financial or fundamental data. Alternative data includes new data sources including alternative financing, account aggregation, as well as on-time utility and rental payments. Financial institutions are adopting and benefiting from these new data sources.
Without credit, it is nearly impossible to buy a home or start a business. People face barriers to accessing credit or pay more for credit for several reasons. Some have negative items on their credit report, such as a record of late payments. Some have trouble documenting their income.
Still others have either no credit history or a credit history that is too scarce, or “thin,” to generate a credit score. This issue affects an estimated 62 million Americans and more often affects African-American, Hispanic and low-income consumers, according to the Consumer Financial Protection Bureau (CFPB).
This is where alternative credit data can play a positive role.