{"id":356223,"date":"2020-12-01T07:00:58","date_gmt":"2020-12-01T14:00:58","guid":{"rendered":"https:\/\/www.creditrepair.com\/blog\/?p=356223"},"modified":"2020-12-22T17:55:48","modified_gmt":"2020-12-23T00:55:48","slug":"what-is-alternative-credit-data","status":"publish","type":"post","link":"https:\/\/www.creditrepair.com\/blog\/credit-report\/what-is-alternative-credit-data\/","title":{"rendered":"What is alternative credit data?"},"content":{"rendered":"\n
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Disclosure regarding our editorial content standards.<\/a><\/p>\n\n\n\n

Your credit impacts you in many different ways. When you want to get a mortgage or a rental agreement, lease a car or even open up a bank account, your credit will be checked. If you have little credit history or a low credit score, you\u2019ll find yourself being denied some of these services or offered them at incredibly high interest rates. You might even fail a job screening!<\/a> <\/p>\n\n\n\n

When you don\u2019t have a credit profile, it can be challenging to start building it out. Luckily, that is where alternative credit data can come into play.<\/p>\n\n\n\n

Alternative credit data is a broad term that refers to all the credit data currently not reported on traditional credit reports. Used correctly, this type of additional credit data can strengthen the credit profile of someone who\u2019s lacking in traditional credit data. Some examples of alternative credit data include rental payments, utility payments and full-file public records (to name a few).<\/p>\n\n\n\n

How does credit reporting work?<\/h2>\n\n\n\n

Individuals aren\u2019t born with a credit report. You won\u2019t have a credit report until you apply for some type of credit account<\/a> or are added to an existing account by another user. When you\u2019re approved for a credit account, the details of that account will be reported to the three major credit bureaus: Equifax, TransUnion and Experian. <\/p>\n\n\n\n

It will take six months of credit history before you\u2019re eligible to have a credit score attached to your profile. From the moment it\u2019s opened, your credit report will continue to pull history on any eligible credit accounts, such as:<\/p>\n\n\n\n

Many people have gotten by on paying cash for everything. These people may have no credit report or might be in the beginning stages, where they\u2019ve signed up for their first account but still don\u2019t have enough credit history to have a credit score. The credit bureaus determine these people to be \u201ccredit invisible\u201d or have \u201cthin credit.\u201d<\/a><\/p>\n\n\n\n

The Consumer Financial Protection Bureau released a report<\/a> stating that as of 2015, 11 percent of the U.S. adult population has a thin or stale score. That\u2019s 26 million people who don\u2019t have enough credit history to establish a FICO credit score. For these people, lenders have no way of telling if they\u2019re responsible or risky borrowers. <\/p>\n\n\n\n

The default assumption is that these people are risky, and lenders give them high interest rates or poor borrowing terms or deny their applications altogether.<\/p>\n\n\n\n

What are forms of alternative credit data?<\/h2>\n\n\n\n

At the end of the day, lenders don\u2019t want to keep millions of Americans from accessing the financial products they may need. Some of these people have purposely avoided credit products (possibly to avoid overspending) and shouldn\u2019t be punished for their choices to date. <\/p>\n\n\n\n

As a result, alternative credit data has become a way for lenders to evaluate those with a thin credit file.<\/p>\n\n\n\n

Alternative credit data helps people who can\u2019t benefit from traditional credit reporting methods. Lenders will now consider evaluating other forms of credit information, such as utility bills, bank accounts, rental payments, asset ownership and full-file public records.<\/p>\n\n\n\n

Just because a person has waited a long time to open a credit account doesn\u2019t mean there isn\u2019t a record of their creditworthiness. These other forms of credit data can still speak to a person\u2019s financial behaviors and patterns, in a somewhat roundabout way. For example, an individual who\u2019s never missed a payment or made a late payment on their rent or utility bills is likely a trustworthy candidate. <\/p>\n\n\n\n

Similarly, if an individual makes late payments on their utilities frequently, it can be assumed they will do the same for other financial products.<\/p>\n\n\n\n

Understanding UltraFICO and Experian Boost<\/h2>\n\n\n\n

The traditional credit bureaus want to consider alternative credit data, but there are still many barriers when it comes to using this type of credit data. First, many individuals may have been paying rent for years and years, but that information isn\u2019t easily accessible. That\u2019s because many landlords don\u2019t report this information and have no incentive to do so.<\/p>\n\n\n\n

There is also the issue of deciding how important this new alternative credit data is when it comes to a person\u2019s credit score. The credit bureaus have been reporting credit scores based on traditional credit data for decades now. Anyone can look up and understand how much factors like credit utilization or payment history play into your credit score.<\/a> The same can\u2019t be said for alternative credit data.<\/p>\n\n\n\n

Luckily, to address this gap, FICO and Experian have both introduced solutions that incorporate alternative credit data.<\/p>\n\n\n\n

UltraFICO<\/h3>\n\n\n\n

FICO released a new scoring method, called UltraFico<\/a>, that includes alternative credit data. As described by FICO, the UltraFICO Score \u201cenhances your credit score based on indicators of responsible financial behavior.\u201d<\/p>\n\n\n\n

UltraFico is a voluntary service that lets consumers opt in for alternative credit data to be included in their report. This process is free and permits FICO to review your checking and savings account information.<\/p>\n\n\n\n

When looking through your account information, FICO will assess if there\u2019s relevant data that shows you\u2019re a responsible consumer. Some of the factors that FICO looks for are:<\/p>\n\n\n\n