An Investigation into Alternative Credit

For many people their credit scores and reports are an afterthought. They do not consider the importance of building and maintaining a strong score until it has an impact on their livelihood. According to Value Penguin, at least 14% of the American population has no credit, the majority of which are low income.

These ‘un-scoreable’ individuals face an uphill battle when trying to purchase a home, car, or take out student loans. The complexity of credit reporting systems can make it difficult for consumers to build traditional scores – especially if they’re not offered the means, education, and information to do so. In response to this issue, companies like Experian are taking a look at alternative credit reporting and how it can help consumers who are considered ‘un-scoreable’ through traditional scoring.

What is alternative credit & how is it used?

Your alternative credit scores are calculated using data that is not used in traditional scores. This can include:

  • Rent payments
  • Utility payments
  • Cell phone payments
  • Banking history
  • Property records
  • Educational background
  • Employment history
  • Shopping habits
  • Information from Social Media

The purpose of alternative credit is to offer a more comprehensive view of consumer spending patterns and creditworthiness. To help the un-scoreable obtain financing and purchase homes.

Pros and cons of using alternative data

As mentioned, alternative credit can help millions of American’s access more affordable funding. There are a number of alternative reporting agencies out there that provide data on consumers. Do the positives of alternatively weighing credit risk outweigh the negatives?


  • Could help some of the millions of Americans who struggle building traditional credit.
  • Could help you get approved for loans that were otherwise unobtainable.
  • If approved, the loan might help build your traditional credit scores, if the lender reports to the major consumer credit reporting agencies. You can ask the lender who they report to before working with them.


  • This type of scoring is very new and is not used by most of the lending community. You will likely end up spending more interest.
  • Gathering of this data is unregulated and accuracy of the information is still under debate.
  • With alternative data, lenders will judge a borrower based on their background, education, and social status. This leaves the door open to discrimination and is one of the reasons our current credit reporting system was developed.
  • It could lead to a borrower taking out more financing then they can afford.

Remember, alternative credit does not replace bad credit!

People who have a thin credit file or no credit at all can use alternative credit to get approved for financing but, it cannot be used to replace bad or negative information on traditional credit reports. Part of the goal in using alternative credit is to attain traditional credit, this new system of evaluating risk does not replace traditional credit scores.

Our credit scoring system was set up for a reason and is structured to minimize discrimination by strictly judging a borrower based solely on their financial history. What’s best for consumers is to educate themselves on how to build their consumer credit score. Income and credit are separate, the bureaus do not use income to determine credit scores.


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