A great credit score is of paramount importance when it comes to personal finances in the US economy. However, traditional credit reports leave millions of Americans behind.
Currently, one in every five Americans does not have enough credit history to be scorable on the traditional scale. To break it down, there are 63 million who are unbanked or underbanked. 92 million have no substantial credit history to go on, 67 million have a thin credit file. 25 million are considered credit invisible.
The demographics that make up these numbers are most likely to be those who are young or new to credit. It also includes Hispanic or African American, newly divorced or widowed, newly immigrated people. Lastly, those who mainly use cash or debit cards, just to name a few. These individuals certainly have a financial history which could be scored, but traditional reports fail to include alternative data.
The use of alternative data in credit reports could mean that 90% of those who were previously unscorable can receive an accurate credit score based upon their actual financial data. Including data such as phone payments, utilities payments, rental payments, and transaction histories will help a lot. It would put nearly half of these individuals into the categories of prime or near prime borrowers.
