Telcom and utility payments, rent, public records, debit transactions, and data scraped online are all categories of alternative credit data. LexisNexis RiskView uses public record, special tradeline, and other predictive data to score consumers.
By using this alternative data, RiskView ™ can score consumers that have little or no credit history giving them an opportunity to obtain credit at fair terms that are closer to consumers with full credit history. Additionally, public record data can add positive dimensions to the credit file of a consumer with a very limited history. For example, one late payment by a consumer with a very thin file will have much larger effect on their credit score than a consumer with a thick file. However, if alternative data factors are incorporated, this one late payment may be partially outweighed by many other positive attributes. Consumers with thick credit profiles experience a similar effect when they have five tradelines with only one late payment. This broader insight allows lenders to further segment and grant loans at terms that are more reflective of the consumers’ credit riskiness.
This deeper view into a consumer’s riskiness allows lenders to be more inclusive in their lending activity and thus better serving traditionally underserved populations while still maintaining the desired level of risk in the portfolio.
Consumers that are unscorable or credit invisible are effectively shut out of the mainstream financial system without alternative data. The CFPB has shown in their research that the black and Hispanic populations contain a disproportionately large segment of credit invisibles. (Source: Data Point: Credit Invisibles, CFPB, May 2015) RiskView allows 17% more consumers to be scored which helps to even the credit playing field between racial groups.
With this gap in traditional credit data coverage weighing heavily on minority groups, credit scoring models that leave out alternative data and its expanded view of these groups are in and of themselves exclusive.
Come hear LexisNexis Risk Solutions present specific case studies pertaining to the use of alternative data and the treatment of minority groups in credit decisioning at the Credit Builders Alliance Symposium in Washington, DC June 26th-27th.