Many Americans struggle to access credit. This is often because they have thin files or are credit invisible. Thin file refers to an individual with four or less credit accounts on their credit file, meaning that they have limited credit history. Credit invisible refers to an individual who does not have a traditional credit file.
Individuals with thin files or who are credit invisible are more likely to be young or new to using credit, have recently immigrated, be cash or debit card users, have not used credit for a long time or have never used credit accounts, or be recently widowed or divorced. Nearly 1 in 3 American adults have thin files or are credit invisible.
Credit invisibility can be expensive; for example, a subprime credit score could cost an individual an additional $32,923 in interest on an average 30-year mortgage compared to a prime score.
However, there are ways to expand financial opportunities and bring more Americans into a scorable credit band. Alternative data is one way to do this, as it takes into account information that is not included in traditional credit, such as speciality finance data and telco and utility data.
Equifax uses alternative data to help individuals improve their credit scores. It has predicted that alternative data could shift 8.4 million American consumers into scorable credit bands. This would cut costs and open opportunities for millions of US consumers.
Alternative data is an exciting method of expanding the financial picture and helping individuals boost their credit scores.
