I’m Stuffed: the importance of full file in alternative credit

I’m Stuffed: the importance of full file in alternative credit

The House Financial Services subcommittee contemplated a new Act today.  It goes by H.R.6363, but its friends know it as Credit Access and Inclusion Act. Basically, it encourages utilities to report to the credit bureaus information about whether I pay, or do not pay said utility on time.  This is interesting because usually utilities (and many others) only report “derogatory” information, or only when I don’t pay on time.  This Act recognizes the importance of nontraditional data for millions of Americans and that the majority who pay on time never get the benefit of doing so, if only non-payment is reported.

About 80 million Americans don’t have a lot of information about them at the credit bureaus.  This means they aren’t able to get mainstream credit, and more likely to enjoy obstacles when renting an apartment, applying for a job and seeking insurance.  This is a big bummer for millions and millions of responsible people who don’t happen to have enough “trade lines” at the big three bureaus (TransUnion, Equifax and Experian).  It’s also a big bummer for lenders (and landlords and insurers) who can’t approve these people in an automated fashion, for lack of this traditional data.

Enter non-traditional, alternative, data.  Predictive. Potentially inclusive – but often not.  Unless utilities, and other alternative data providers, report “full file” – or both positive and negative behavior – most of these new data will only benefit the industry, but not many consumers (unless, of course, the new data are used in a waterfall, see below).

The point is not to approve bad risk consumers.  The point is to dramatically improve our ability to determine who is a good or bad risk.  This will benefit millions of consumers and represent new business to industry.  Some innovators in this field are Experian (which recently launched a new First View alternative score), L2C (in which Core has an investment), LexisNexis (which uses a ton public record data), Zest Finance (which is also an online lender), Sociogramics (focused on social media data), and DemystData (same).

If the Act passes, it’s a good thing.  For people and for business.  Here’s the thing itself.