Have you struggled to maintain good credit? Or do you avoid credit, and try to pay for everything in cash? Or perhaps your credit took a dive during the recession. If so, you may find getting credit frustrating and difficult. You may have even given up on trying to get a credit card or auto loan.
An estimated 50 million Americans are considered “underbanked” because they use non-traditional lending services such as payday loans or pawn shops. “15 million people were credit damaged during the recession but have since recovered,” says Ankush Tewari, Director Credit Risk Decisioning for LexisNexis. “Some of those people have stabilized and some haven’t, but just looking at the score you may not be able to tell that.”
LexisNexis is the largest provider of what’s called “alternative credit data” — information that doesn’t appear on traditional credit reports but can help lenders make better credit decisions. This data may help lenders extend credit to more consumers.
Here are four things you need to know about alternative credit data (ACD) — and how it may help you get approved for loans and credit cards at better rates:
1. There’s more than one way to approve an application.
Rent information, utility payments and records of eviction. Professional licenses held by the consumer. These are types of information that some lenders are finding helpful in trying to extend credit. This information, however, doesn’t usually appear on the credit reports from the major credit reporting agencies.
But with this kind of data, lenders may be able to extend credit to more “thin file” and subprime consumers. Consumers with thin files don’t have much of an established credit history with the major credit bureaus. And subprime consumers have poor credit scores due to problems such as late payments, repossessions or foreclosures.
“If consumers have a thin file — (ACD) helps lenders fill in the gaps the credit report data may not have,” Tewari explains. For example a lender may be able to take into account the fact that a borrower has a stable address history or lives in a high value property. “All those items help a lender get a feel for the borrower and they correlate with creditworthiness,” he says.
2. Lenders want you.
There are definitely lenders who want to find ways to lend to the underbanked and subprime market. “Not only are the underbanked a large and eager market, they’re also a fast-growing one,” says a recent study, “Evaluating the Viability of Alternative Decisioning Tools: A Study of Auto and Credit Card Lending Markets,” conducted by Javelin Strategy & Research. These consumers are more likely to apply for a credit card, and generated some $78 billion in fee and interest income, according to a 2012 CFSI study.
Not every lender can or will be willing to take the risk that comes with lending to consumers with low or non-existent credit scores. But some are considering it, and they are looking at ways ACD will help them say “yes” more often.
3. You’re more than your score.
Underbanked consumers are are much more likely to have missed payments, and their credit scores have likely taken a hit as a result. The Javelin study found that when underbanked consumers with low credit scores are asked the reason for their poor scores, they are more likely to cite late payments (33% vs. 28%) and going into collections (31% vs. 25%) compared with all consumers.
Young people, on the other hand, are more likely to run into a problem due to a lack of credit information. The Javelin study found that youth are three times as likely to be denied credit cards and more than five times as likely to be denied auto loans compared with consumers aged 25 and older.
To help approve more of these applicants, lenders may ask them for more documentation, such as information about employment status and length of time on the job, pay stubs, and bank statements. But that causes frustration with borrowers, who may decide it’s not worth it. ACD may prove to be a way for them to get the information they need without making the consumer produce reams of documentation.
4. You can get this credit report for free.
You can request a copy of your LexisNexis RiskView report for free by calling 866-897-8126. If you find a mistake, you can dispute it, just as you would a mistake on your traditional credit reports. “We are very transparent,” says Tewari.
You can also get a copy of your three traditional credit reports for free, once a year, and you can use Credit.com’s Free Credit Report Card for a easy-to-understand overview of your credit report information, in addition to your free credit scores.