Feb 25, 2013 Sean Albert
After banks and credit unions began restricting lending, underbanked consumers were forced to explore other options. As a result, alternative credit methods like prepaid cards have exploded in popularity in recent years.
At the same time, however, many misconceptions about underserved citizens have prevailed, according to a recent report by the Credit Union Times.
"The stereotype of these consumers is that they are lower income, not good credit risks and not economically promising," Greg Rable, CEO of FactorTrust, told the news source. "But the reality that we are finding in our data is that these consumers have significant income, often have jobs and could be very good credit risks."
As Rable noted, many people are having difficulty securing funds not because they have poor credit scores, but because they're just out of college and haven't had the opportunity to build credit. However, many banks and credit unions have refused to serve these consumers in recent years, considering anyone with a score near the subprime level to be too big of a risk.
Alternative methods on the rise
In response to the growing number of underserved citizens, alternative lenders have developed Payment Reporting Builds Credit (PRBC) methods that involve using different data - such as phone and utility bills - to calculate credit scores.
"This partnership reinforces the value of combining industry leading alternative credit data with predictive traditional credit bureau attributes to bring greater understanding to short-term lenders of a consumer's ability and willingness to pay," Rable recently said in a statement.
Some of these PRBC measures have provided consumer credit reports a 25 to 30 percent boost, according to a FactorTrust report.
In addition, many alternative lenders are creating payment methods that are tailor-made for underbanked citizens, according to a Finextra Research blog. In the United Kingdom, for example, prepaid debit and credit cards are becoming extremely popular among consumers.