In today’s world, keeping a high credit score is essential to a consumer’s financial security. Banks and companies may raise the interest rates on loans and mortgages due to poor credit, which might end up costing thousands of dollars over the course of the payback period. Other drawbacks of having a low credit score is that these people might not even be qualified to receive certain goods or services.
Notably, 76 million Americans are classified as having little to no credit history, which can contribute greatly to having a poor credit score. Young people, recent divorcees, and immigrants are disproportionately affected since they frequently have thin credit files or no credit history at all. In turn, this forces them to turn to more costly alternative financial products and services.
More people would be able to receive a credit score if businesses were to use alternative data when evaluating customer credit history. Alternative data contains information that is not included in typical credit files, but is nevertheless consistent with the Fair Credit Reporting Act. By using this data, 8.4 million customers might be moved into creditworthy customer categories, which would benefit both the customers financially and the businesses with more access to customers.
