92 million Americans have little to no credit history. Having a thin credit file can make it harder to take out loans and can make interest rates higher for mortgage payments. Most people who are credit invisible have low credit because they are young, have recently immigrated, or are recently divorced. All of these reasons are out of the consumers control, and so it isn’t fair that their credit should suffer. So what is the solution?

Alternative data can be used to calculate a credit score when people have a thin credit file. A thin credit file means that a consumer has 4 or less accounts open in their name, and so it makes it difficult to calculate a credit score in the traditional way. There are other ways of checking if a person is financially responsible though, and so using this alternative data can allow for credit invisible people to still gain the lines of credit they need. 

One of the most underutilized tools for building credit histories is rental payments. 51% of consumers believe it would be helpful to have rental payment information factored into their credit scores. If consumers are staying up to date in their rent payments, it serves the same purpose if they were up to date on their credit cards or loan payments. Using this information would allow for credit invisible people to have one more piece of information factored into their score to build their credit. 

Along with rent payments, telco and utility payments can be used as alternative data to factor into credit scores. 90% of American adults have at least one utility bill in their name, and using this data could be extremely beneficial to the millions of consumers that are credit invisible or have thin credit files. In fact, 7.5 million U.S. consumers would be able to move from unscorable to  prime or near prime scores if utility payments were considered. 

One of the most common reasons that consumers have limited credit is because they rely mainly on debit accounts and cash. Using bank transactions could increase prime consumers by almost 4 million! Considering this alternative data could also reduce the credit unscorable population by 50%.

Overall, alternative data could significantly decrease the amount of credit unscorable consumers across the country. With so many benefits, things like rentals payments, utility bills, and bank transactions should be considered in calculating a consumers’ credit score.