Home > Credit Score > The Impact of Alternative Credit Reporting Agencies

Comments 0 Comments

While many consumers have specific questions about how the credit system works, how credit scores are derived and how the credit reporting system operates, most people today generally understand that their debt (such as car and mortgage loans, credit cards, student loans, etc.) repayment history is reported. Additionally, most of us are aware of the three national credit reporting agencies (Equifax, Experian and TransUnion) that house our credit information, and that lenders will request our credit reports and credit scores from one of these credit reporting agencies when we apply for credit.

What is less commonly known by consumers is that there are other credit reporting agencies that capture non-traditional credit information on consumers that lenders will sometimes access to help them in their credit review processes.  What does non-traditional mean?  This is industry jargon for credit information that is typically not captured and stored by one of the big three national credit reporting agencies.

Some examples of non-traditional credit include information on:

  • How you manage your checking account.  For example, do you have a history of bounced checks?  How long has your checking account been established?
  • Have you used payday lending services? Did you pay those loans back, and on time?
  • Your payment history with rent-to-own furniture stores and subscriptions (magazines, CDs, etc).
  • Payment of cable, utilities and even rent is sometimes collected and made available to lenders to use.

[Featured Product: Need credit monitoring options?]

While these types of data are not as widely and systematically used as the “traditional” credit data sourced at the three national credit reporting agencies, lenders may access this alternative credit information on applicants who do not have a credit report at the national credit reporting agencies or have what is called a “thin file”—meaning they have a very limited credit history.  It is estimated there are approximately 30-50 million consumers who meet this definition.  Lenders may incorporate this alternative information into the review of the credit application when the applicant has a robust traditional credit report, but is right on the edge of the credit score cutoff they employ with the credit score sourced from the regular credit reporting agency.  Some lenders also leverage this alternative data in their fraud detection strategies and practices.

Most lenders will conduct a lot of analysis to first understand and quantify the incremental benefit (predictive power) this alternative data provides when trying to determine the future risk of their credit applicants—and will only access and use this data when they find it adds value.

If they leverage the alternative data to make a credit decision and it influenced any decline decision, then they must make you aware of this in the adverse action letter they provide and include the name of the alternative data provider to you, so you can request a free copy of that credit report and verify that the information collected on you is accurate.

Don’t want to wait to be declined to see what alternative data exists on you right now?  Please click here to see articles by Gerri Detweiler on alternative credit reporting agencies.

Image: meddygarnet, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team