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7 Benefits of Using Alternative Credit Data for Financing Companies

May 24, 2021 MicroBilt News

7 Benefits of Using Alternative Credit Data for Financing Companies

What if a new source of data could transform your lending business?

In the lending space, credit data is extremely important. But in addition to traditional data, alternative credit data has many benefits that may change how you do business.

Wondering what this data can do for your company? Keep reading to discover our guide to using alternative credit data and its many unique benefits!

Using Alternative Credit Data: What Is It?

Our guide is going to focus on the benefits your company will experience once you begin using alternative credit data. Before we go any further, though, it's important to define what this data is.

Many different kinds of information would fall under the broad umbrella of "alternative" data. But a good summary of this data is that it is FCRA-compliant information that would not be included in a traditional credit report.

A common example of alternative data would be checking account data. By studying consumer checking account information (including rental payments, utility payments, and overall cash flow), you can discover much more than a standard credit check would reveal.

Why is this information so important? The insights you gain from alternative credit data may help you approve loans for countless consumers who might otherwise be overlooked. And it can even help you prevent things like high default rates and fraud.

Now that you know what alternative credit data is and why it is so important, let's dive into the different benefits the data has to offer to your business.

1. Fuller Picture

The first benefit of alternative data for financing companies is quite easy to understand. Simply put, using alternative credit data provides a fuller picture of a consumer's finances and spending behavior.

It's an open secret that credit reports have many limitations. And if you rely solely on the data from credit reports, you might get a skewed view of a customer's financial stability.

Another thing to focus on is the fact that we live in the age of analytics. Additional information provides additional opportunities for you to learn about key demographics, and alternative data is a valuable way to access that information.

2. Realistic Data

Obviously, additional consumer data is always good to have. But another reason you should examine alternative data is that it offers a more realistic view of someone's overall finances.

Certain generations, particularly Millennials, have faced an unconventional past few years in terms of financial stability. Many are likelier to be stringing together various "gig economy" jobs rather than one conventional job. And still, more are likelier to live with their parents than on their own.

Put it all together and you have millions of people whose credit score may not accurately reflect their actual financial stability. But with access to alternative credit data, you can better learn who is better able to pay back a loan.

3. Stay Competitive

Still, need a compelling reason to use alternative credit data? In that case, we can assure you that your competition is figuring out how to use this data right now!

That's because the credit data by itself is only one part of this puzzle. Once a lender has this information, it is only a matter of time before they develop new products, services, and technology.

In that respect, you should treat alternative credit data as the next "big thing" in the lending space. Better to get in now than to wait until your competition outmaneuvers you!

4. Better Customer Service

Running a successful lending business is about more than just numbers. Beyond credit checks and loan amounts, the success of your business depends largely on the success of your customer service.

And the more information you have about a customer, the better you can help them. And this extends further than simply approving or denying their loan application.

All of this alternative credit data lets you know detailed information about a customer's lifestyle and purchasing habits. At the bare minimum, this will help you make recommendations that are perfectly tailored to each customer.

The satisfied customers will spread the word about your superior customer service and ultimately help to grow your brand.

5. Website Integration

As we noted before, alternative credit data can come from almost anywhere. You can even gather your own data while adding some innovative new features to your website.

For example, some lenders have begun to analyze how long a customer spends browsing the website before applying for a loan. Knowing how long they spent can help you separate those who are serious about getting a loan from those who are simply impatient and want quick cash.

Additionally, knowing what sections of your site a customer lingered on can give you additional info about the products and services they are looking for. This can help to streamline the entire customer service and lending process.

6. Reach Other Demographics

Previously, we mentioned how alternative credit data is especially helpful for understanding the finances of Millennials. And that is part of a broader benefit: helping your business to reach different demographics.

Your ultimate goal should involve growing your lending business. But if that business doesn't adapt to changing demographics, then you might be stuck in the past and unable to cater to the modern customer.

By using alternative credit data, you get to have it both ways. You'll retain your more traditional audience while being able to each and help additional audiences.

7. Future Innovations

If we had to describe alternative credit data in one word, it would be simple: this data represents the future.

Beyond credit reports, this data gives you a chance to study things like Venmo and Paypal payments. It helps you understand the true financiers of a gig economy worker and the finances of social media influencers.

The truth is that we don't know everything about the future of lending or the innovations of tomorrow. But by relying on data that is most relevant to modern consumers, you can effectively future-proof your business.

What's Next?

Now you know why your business should be using alternative credit data. But do you know who can help you get started?

We provide the tools and information necessary to help lenders of every size reach their full potential. To see what we can do for your business, check out our tools for improving credit scoring and decisions today!