What is Alternative Credit Data? When Issuers Look Outside Your Credit Scores for Insights

Ever thought about taking up an alternative lifestyle? Maybe going vegan, living in a van, or dressing in a smashing neo-soul wardrobe?

It seems your run-of-the-mill creditor may have beaten you to the punch by clambering aboard the alternative credit data train. That’s where lenders and credit card folks gather all kinds of data that aren’t in your credit report to determine your creditworthiness. Isn’t that something? 

Alternative credit data refers to financial information outside of traditional credit reports, such as utility payments, rental history, and bank transactions, used by lenders to assess creditworthiness.

Now, don’t go running off scared — I’m going to gently guide you through this different way of looking at your money matters. You’ll see it just may be a blessing for folks whose credit looks a bit thin or rundown. 

Alternative credit data gives you another way to prove you are responsible with your money. You need to know what is included in this data and how it differs from (and often supplements) traditional credit reports.

Traditional Credit Data vs. Alternative Credit Data 

Traditional credit data involves credit reports and scores. These credit indicators are based on your history of borrowing, the way you repaid your loans, and any outstanding debts still hanging around. 

However, alternative credit data takes a broader view, exploring places that credit scoring models FICO and VantageScore might not even glance at. Instead of just eyeballing your history regarding loans and credit cards, alternative credit data can include whether you’re keeping up with utility bills and paying rent on time. 

While traditional credit data relies on standard sources, alternative credit data expands the range of what lenders consider when deciding if you’re a safe bet.

This alternative data can really be a lifesaver if your traditional credit isn’t the prettiest or you are a credit newbie. Instead of writing you off because your credit score is lamer than a politician’s excuses, this alternative data can show the lender if you’ve been responsible with everyday expenses.

It’s a good deal if your life has taken you down some pretty bumpy roads or you’ve never ventured off the farm. 

Common Types of Alternative Credit Data

What kind of things would be included within alternative credit data? Well, lenders look at all sorts of everyday payments to size you up:

• Utility Bills: Paying the light bill on time? That’s what lenders want to see! They will check whether you have kept the water, electric, and gas payments flowing without problems. It shows them you manage monthly obligations with a steady hand on the reins.
• Rent Payments: If you have been paying out rent money every month like clockwork, you get a gold star in the alternative data playbook. It’s proof that you have been able to keep a roof over your head without falling behind, and lenders will appreciate that kind of reliability the way a farmer respects a good tractor.
• Subscription Services: Yes, that monthly streaming service or gym membership plays into the alternative credit game. Regular payments for things as mundane as Netflix or your Farmer’s Almanac subscription prove to a lender that you have the discipline to handle recurring expenses — even if they’re just for watching Hee Haw reruns or fixing up your old truck.
• Phone and Internet: Your phone and internet bills pull some weight in the alternative credit world. Lenders check whether you regularly pay these on time, testing whether you can keep your life connected.
• Insurance Payments: Creditors want to see you paying for your car or health insurance every month without a hitch. It shows lenders that you’re sticking to your commitments and taking care of your responsibilities.

You see, you have alternative data that lets lenders get a nice view of how you manage everyday life. That’s like letting them watch how you ride a horse before they decide to trust you in the saddle.

It would be good for you to find out why lenders consider more than your conventional credit score. They want to make sure you are trustworthy with money and pay your bills on time.

A Broader View of Creditworthiness 

When it comes to judging if you are a good bet, lenders look at more than your FICO score. Alternative credit data lets them get an idea about more of your financial behavior, like whether you keep up with the electric bill on time and pay the rent. That is a little like peering under the car hood to see whether the engine is running smoothly. 

This gives the lenders a much better view of how you deal with your finances on a day-to-day basis. Even if your credit score’s been knocked around like a fence post in a storm, paying your utility bills and keeping up with subscriptions can show lenders you’re steady where it counts.

All that extra information lets lenders identify the people who may look less than stellar on a more traditional credit report but will, in fact, pay their bills. It is akin to being able to view an entire herd rather than just the cattle leading the pack. 

Reducing Risk in Lending 

Where alternative credit data really earns its keep is when it helps lenders reduce the risk of lending to people likely to default on their loans. By digging into your history of the times you paid bills on time, they get further insight into knowing whether you’re going to keep up with payments or if you’re liable to bug out.

Lenders may see a bigger gamble when they use only traditional credit reports, and borrowers don’t have a long history of credit use. But with alternative data, they access a larger pool of solid evidence to help make decisions. 

This enables lenders to reduce risk when they’re lending out their cash — and could result in better terms and/or interest rates. They make smarter decisions, and that means better outcomes for both the lender and the borrower. It’s a win-win!

Expanding Access to Credit

If you’ve had trouble getting credit, alternative data may help you bang open the barn door. This allows good folks who, under other circumstances, might not have obtained credit to qualify for a new loan or a credit card.

Alternative credit data is useful in expanding opportunities to reliable borrowers who may not have the flashiest credit scores but can handle their finances.

With alternative credit data, a lender has more food for thought and can extend credit to individuals who were previously invisible in the traditional system.

To those whose credit history is as thin as a sheet of paper, this is like a breath of fresh air.

You should understand how alternative credit data impacts loans and credit card approvals. Lenders reach for more nowadays than just your traditional score, and that is changing the game rapidly.

Loan Approvals with Alternative Credit Data

When you’re looking to borrow money, lenders dig deeper than just that tired old credit score. Where personal loans are concerned, they look at whether you’ve paid your utility bills on time and if your rent gets settled like clockwork.

If you’ve kept these ducks in a row, the odds are you are a pretty safe bet, even if your credit score is looking shakier than a three-legged mule.

Auto loans are similar. Maybe your FICO score is as low as the creek during a dry spell, but if you have been shelling out for phone and internet bills responsibly, that may be enough to get you the keys to a new ride. Lenders know a person keeping up with the bills can likely handle a car loan, too.

Alternative credit data opens new doors for people seeking a personal loan, auto loan, or home loan whose credit scores don’t quite tell the whole tale.

Home loans are a serious business. Lenders may check whether you’ve been a good tenant who pays the rent on time and keeps up with rental insurance payments. If your payment history is solid, you have a better chance of securing a mortgage, even if your traditional credit report has some issues.

Credit Card Approvals with Alternative Credit Data

Credit card companies often refer to your alternative data, too. Instead of just relying on what FICO says, they may evaluate your everyday payments to see what they reveal. If you’ve been paying your utility bills, rent, and even things like your gym membership on time, you may qualify for a new credit card.

Programs like Experian Boost can even help add your utility and phone bill payments to your Experian credit report, using that alternative data to possibly improve your credit score. That is only if your lender looks at a score derived from your Experian credit report.

But still, it is like tossing a few more logs on the fire to keep things burning bright, showing lenders you’ve been taking care of business, even if it isn’t on your regular credit report.

Even with low credit scores, you may get approved if your alternative data tells a good story. Card issuers may be willing to consider folks who have been good at paying their other bills despite the bruises on their credit reports.

On the other hand, if your alternative data is telling a sad story, don’t be surprised if your application gets rejected, even with a halfway decent FICO score. Some card issuers consider how well you meet your everyday expenses, and they tend to be quite thorough.

Impact on Interest Rates and Terms 

Alternative credit data may play a role in your interest rates and loan terms. If you keep up with your bills, lenders may give you a better interest rate since you’ve proven you can manage your money, even if your credit score says something different. 

It’s akin to a pat on the back for being responsible with your money. But if your alternative data is sketchy, you may be stuck with a higher interest rate.

Lenders know when to raise the stakes if they get wind of trouble in your payment history. 

Loan terms, such as how long you have to pay it off and any great perks, may also be impacted by alternative data. Keeping up with bills could get you better terms while missing payments typically leads to trouble.

Now, it’s time to get saddled up and boost your alternative credit data. It isn’t rocket science, but following these steps can be the difference between securing a loan or going home empty-handed.

Pay Bills on Time

Well, first of all, paying your bills on time is as important as watering crops during a dry spell. Lenders love to see you make steady payments, whether it be rent, utilities, or even your Netflix subscription.

Falling behind on any of your bills can make your alternative credit data look as patchy as an old pair of jeans.

If you pay your recurring bills like clockwork, then you show lenders you can manage your money responsibly. You want to be like a well-trained horse that never bucks — steady, reliable, and ready to go.

Use Online Payment Platforms Responsibly 

Online payment platforms like PayPal or Venmo can actually improve your alternative credit data. If you send money with these apps, be sure to do so responsibly. That means timely payments, which may include subscriptions or rent, and not spending outside of your means. 

The platforms track your transactions, and good habits can highlight your creditworthiness. Mortgage lenders, in particular, may look at Venmo or PayPal histories to uncover any hidden debt. It shows lenders if you have controlled your spending or made any large purchases outside of the traditional banking system.

Just as a ledger shows every penny in and out, an online payment history can show lenders whether you have financial smarts.

So, if you’ve got side gigs or need to reimburse your friends for dinner, be sure to make use of these platforms like the responsible wrangler you are. You certainly do not want any careless behavior to drag your credit through the mud.

Build a Well-Rounded Financial Profile 

Build yourself a good financial profile to really catch a lender’s attention. Exercise sound financial behavior to help you connect with lenders by showing them you are a responsible soul.

A great place to start is with a steady savings plan, even if it is just a little bit every month. That way, you can build a cushion for when things get tight, making you look like a forward-thinking borrower.

Secondly, keep your debt low relative to your income and make regular repayments on whatever loans you have already taken out. 

The more your financial habits appear balanced and responsible, the more likely lenders will feel they can trust you with their money.

Finally, track your digital transactions, such as payments you make through an app and online services.

Using these tips, you can make your alternative credit data attractive to anyone who may be interested in seeing it.

Alternative credit data rounds out your credit profile by picking up on all those day-to-day responsibilities that may not show up in your traditional credit score. If you keep up with your rent, pay your utility bills, and settle up through online payment platforms, you can show lenders you’ve got the grit to handle financial obligations.

For people whose FICO scores are shakier than an oil fracking site, alternative credit data can be the rope that cinches everything together. It lets the lenders get the big picture. Even when your formal credit has taken a hit, it indicates that you have kept paying your bills on time.

With luck, you won’t be left standing out in the cold when you apply for credit.