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Expert: Alternative credit data changing the financial sector

Jul 17, 2013 Sean Albert

After the Great Recession, lenders significantly changed the manner in which they operate as they attempted to mitigate risks associated with providing loans. Many have started to provide innovative ways to help consumers obtain funding, which has led to the increased use of alternative credit data.

At the Center for Financial Services Innovation's (CFSI) annual conference in Miami, the organization's president, Jennifer Tescher​, highlighted the usefulness of alterative credit.

She noted that as lenders and bankers look to find innovative ways to improve the consumer-banker relationship, many financial institutions are allowing customers to control their own financial futures. For this reason, she suggested that alternative credit use may become more popular in the coming years. Potentially, this practice could provide service to the portion of the population without traditional bank accounts, which is largely underserved by the financial sector.

"The underbanked market has gone mainstream. This means big changes for the financial services industry," Tescher said at the conference. "We, as an industry, have a responsibility to move beyond simply making financial services accessible and instead focus on fostering the successful uptake and healthy usage of high-quality products."

The move to alternative credit considerations by major banks could have a significant impact on the national economy. According to Credit Builders Alliance, there are 70 million Americans without a traditional credit history. Without consumer credit reports, many of these citizens have difficulty funding vehicle or home purchases, which often require borrowing.

The source noted that payments relating to rent and utilities are not included on most credit reports. However, many independent reporting agencies are formulating more inclusive practices that may take this alternative data into account.

For the millions of underbanked Americans, this could be a major development. Such changes to credit reporting practices may be advantageous for consumers as well as lenders, as loan applications would likely increase.