News & Resources

3 characteristics of strong alternative credit data partners

Dec 12, 2016 Walt Wojciechowski

3 characteristics of strong alternative credit data partners

Robust credit risk management operations draw from comprehensive, accurate data to distinguish good from poor risk. Information provides transparency, enabling lenders to expand their businesses, establish targeted risk-based pricing and expedite customer services without compromising on data standards.

Alternative credit data, in conjunction with traditional consumer credit information, expands the amount of knowledge on which analysts can capitalize. Many companies offer alternative credit data as part of credit risk management solutions, but very few deliver accurate, reliable information. There are three characteristics lenders should look for in alternative credit data partners:

"Demand for alternative credit data has prompted companies to rush products to market."

1. Experienced
In recent years, companies with no experience collecting, processing and validating alternative credit data have released products that provide such information to lenders.

Some of these enterprises have worked with traditional credit, and therefore assumed they could weigh alternative data in the same manner as they do traditional credit. But utility, rent and phone payment information, all of which fall under the alternative umbrella, is not the same as credit card information. In addition, rising demand for alternative credit data has prompted companies to skimp on quality assurance and rush products to market.

When assessing alternative credit data providers, favor companies that have at least a decade of experience handling such information. These organizations have spent years of research and development refining their collection and processing methods, and therefore produce better alternative credit services.

2. Reliable
Credit risk management professionals know that a lot can change in a year. A consumer may lease a new car, file for bankruptcy, switch residences, get married, and so forth. Events as big as these change a person's risk profile. The problem is, most traditional credit reports neglect to provide such data.

Your alternative credit partner must update consumer profiles as things change. MicroBilt, for example, updates alternative credit reports whenever a person:

  • Changes addresses
  • Receives a banking inquiry
  • Files for bankruptcy
  • Is subjected to a lien, judgment or eviction
  • Purchases a new property
  • Obtains a new phone number

Such oversight enables lenders to not only confirm borrower identities but also analyze how ongoing behaviors impact the risk of extending credit to certain consumers.

Consumer financial situations may change from month-to-month, and so should their credit reports.

3. Knowledgeable
The alternative credit data partner with which you work must demonstrate its knowledge of credit risk management as a whole. You can learn whether the provider has such subject matter expertise before the sales process.

Look at the products the alternative data partner offers. Do those solutions verify the legitimacy of consumer bank accounts? Does the partner deliver solutions on business credentialing and personnel background screening? If the partner delivers consistent, quality solutions across different verticals of credit risk, such products testify to the company's ability to help you improve your risk portfolios.

When conducting your assessment, reach out to the alternative data partner's existing clients and customers. Speak with the lending department and ask how the provider enables its client to systematically eliminate poor risk and expand operations responsibly. Once this stage is complete, you can reach out to the company's sales team to gather more information.