Credit Bureaus Push for Alternative Data, Including Payday Loan Payments

Inside Subprime: May 1, 2019

By Jessica Easto

The country’s three biggest credit bureaus—Experian, Equifax, and TransUnion—are engaged in an effort to gather more credit data in order to increase the number of potential borrowers.

Right now, credit bureaus collect credit data, such as payments on credit cards, student loans, mortgages, and car loans, in order to calculate a credit score, a number associated with your level of risk in the eyes of potential lenders. Now, credit bureaus want to collect additional “alternative” data from other accounts that traditionally are not part of your credit report. These include payments to utilities, landlords, and certain creditors, including rent-to-own stores, payday loans, and online personal loan lenders.

The credit bureaus argue that collecting more data provides an opportunity for those with low credit to raise their credit scores, which would in turn make them eligible for certain financial products they currently do not quality for. Credit bureaus also say that collecting alternative data could help younger borrowers who may not have credit cards or mortgages.

In 2017, the Consumer Financial Protection Bureau (CFPB) began an inquiry into the practice of collecting alternative data. In an announcement on the CFPB website, the organization claimed that “26 million Americans are credit invisible, meaning they have no credit history with a nationwide consumer reporting agency.” Collecting alternative data, it said, was a way to help these borrowers get on the map.

“Alternative data from unconventional sources may help consumers who are stuck outside the system build a credit history to access mainstream credit sources,” said then-head of the CFPB Richard Cordray.

Since then, the credit bureaus have taken steps to prepare for the potential shift to alternative data collection, including acquiring companies that specialize in such data.

Some consumer protection groups remain skeptical of alternative data’s benefits. Some have argued that collecting additional data is a privacy issue, citing the massive 2017 Equifax data breach. Others are concerned that collecting certain types of alternative data—particularly those from utilities and payday loans—may actually have the opposite of the intended effect on disadvantaged communities, making it even harder for them to improve their credit.

These communities already face challenges when it comes to mainstream credit. According to a 2017 CFPB report, those living in low-income areas are 240 percent more likely than those in richer areas to be credit visible in a negative way, such as through overdue bills. The report also found that black and hispanic populations are more likely to be affected by thin or nonexistent credit.


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