Leveling Up: How Alternative Data Reveals Deeper Customer Insights

Highlights: 

• Traditional credit files offer a limited view of creditworthiness, often excluding "thin file" or "credit invisible" consumers.
• Alternative data, such as specialty finance and utility payment history, provides a deeper, more inclusive understanding of a consumer's financial behavior.
• Combining traditional and alternative data enables lenders to make smarter decisions, approve more customers responsibly, and gain a competitive edge.

In today’s financial landscape, lenders need every advantage to make smarter, more informed decisions. Traditionally, credit approvals have heavily relied on a person’s credit file — standard credit data that includes payment history, outstanding debts, and credit inquiries. While this method can work well for those with established credit histories, it leaves out a significant portion of the population. That’s where alternative data comes in. By incorporating additional sources of financial information, lenders could gain deeper insights, approve more customers, and better balance growth with risk.

The Standard Credit File: A Solid Foundation — but Not the Whole Story

The traditional credit file has long been the foundation of lending decisions. It provides a strong indicator of how a person has managed debt in the past, helping lenders predict their likelihood of repaying a loan. However, this method has limitations. Many consumers — especially younger individuals or those who have avoided using credit — don’t have enough history to generate a meaningful credit score. These "thin file" or "credit invisible" customers often struggle to get approved, not because they are financially irresponsible, but because they lack a sufficient track record within the standard system.

The Power of Alternative Data

Alternative data adds another layer of insight by considering nontraditional financial behaviors. Two particularly valuable sources are

• Specialty/Alternative finance data: This data includes short-term lending, lease-to-own/rent-to-own, and other nontraditional lending attributes. These sources can show responsible financial habits that don’t appear in a standard credit file.

• Utility data: Regular payments for electricity, water, gas, and even cell phone bills can demonstrate financial reliability, especially for those who haven’t used traditional credit extensively.

When lenders combine traditional credit data with alternative data, they gain a fuller picture of a consumer’s financial behavior. This insight means they can make more accurate lending decisions that help both customers and financial institutions.

How It Benefits Consumers

For consumers, the inclusion of alternative data can be life changing. Many individuals who would otherwise be declined based on traditional credit metrics alone may now qualify for loans, credit cards, or financing. This shift is especially important for:

• Young adults who haven’t had time to build a strong credit profile

• Those who have recently moved to the United States and are new to the U.S. credit system

• Those recovering from financial hardship, where traditional credit scores don’t reflect their recent positive financial behavior

By using alternative data, lenders can approve more people while ensuring they are still lending responsibly. This process creates a fairer system where creditworthiness is based on a wider range of financial behaviors.

How It Benefits Lenders

From a lender’s perspective, combining standard and alternative data isn’t just about approving more people. It’s about making better decisions. More data means a more complete view of risk, allowing lenders to expand their customer base while maintaining a consistent risk profile. Key advantages include:

• Increased approvals without excessive risk: Lenders can confidently approve customers who might otherwise be overlooked or end up in a lower credit tier, leading to business growth without sacrificing portfolio quality.

• More predictive power: Alternative data provides early indicators of financial stress or stability, allowing lenders to proactively adjust their strategies.

• Competitive edge: Institutions that leverage alternative data can serve more customers and develop stronger relationships with them over time, setting themselves apart in the market.

Standard Credit Data + Alternative Data = A Smarter Approach

Lenders have a tough job balancing risk and opportunity, especially with today’s fast-changing economy. Things like higher interest rates and student loan payments make it harder to manage risk. To keep up and stay competitive, lenders need better information. OneScore from Equifax helps by using alternative data to reveal hidden risks and opportunities.

Some lenders are already incorporating these insights into their scoring models. OneScore, for example, is a solution that blends traditional and alternative data to provide a more comprehensive view of consumer creditworthiness. By utilizing these combined approaches, lenders can level up their decision-making and ensure they aren’t missing out on valuable opportunities. 

The Future of Credit Assessment

As the financial world evolves, so too must the methods for assessing creditworthiness. Alternative data is a game-changer, helping lenders approve more customers while managing risk intelligently. For consumers, it means fairer access to credit. For lenders, it means smarter growth and a competitive advantage. By embracing both standard and alternative data, the industry is taking an important step toward a more inclusive and insightful approach to credit evaluation.

The key takeaway? More data leads to better decisions — keeping your business goals within sight.

Learn five ways to level up your lending game with alternative data.

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