The following post is part of a series of blogs written by MeridianLink® Partners who will be attending MeridianLink LIVE! To learn more about AI in lending and the event, click here.
In the lending world, alternative data—Fair Credit Reporting Act-compliant information not included in a traditional credit report—has gone mainstream and is no longer viewed as “alternative.” For any financial institution looking to offer the most opportunities to its consumers, maximizing use of alternative data sources—including telecommunication (telco), utility, and specialty finance data—in credit assessments is essential.
According to a 2023 Equifax Access to Credit and Alternative Data Report, this valuable and insightful data could help an additional 8.4 million previously unscorable consumers become scoreable. This creates opportunities to potentially:
- Extend more credit to existing risk profiles
- Expand addressable lending markets
- Promote equitable lending and consumer financial health
- Build consumer loyalty and lifetime value
“Credit unions and community banks play an incredibly important role with their members, customers, and communities. Those looking to expand their relationships and increase the overall lifetime value must include alternative data in their loan decisioning processes to compete with larger financial institutions for more lending opportunities,” said Tammy VanWambeke, Senior Vice President of Financial Services and Enabling Technology, Equifax.
“Lenders using new risk scores that leverage alternative data to optimize model performance see a 17% predictive lift across portfolios and up to a 7% increase in approval rates without increasing risk.”
Bringing in new and/or retaining accountholders is even more top of mind for credit unions and community banks, as elevated interest rates, lingering inflation, and rising debt-to-income ratios have made borrowing more expensive. Knowing these audiences and their businesses allows smaller institutions to offer personalized services—including support for credit management, debt assistance, and competitive borrowing options.
Using alternative data sources to extend credit helps smaller lenders serve their communities more comprehensively and build lifelong relationships with more consumers.
Equifax® is committed to enabling inclusive financial opportunities that move people forward. A single opportunity can be a critical first step to financial stability, shaping the future of families and communities for generations. Leveraging alternative data empowers community banks and credit unions to offer more of these life-changing opportunities and drive positive economic change.
https://www.equifax.com/newsroom/all-news/-/story/why-alternative-data-is-no-longer-alternative-for-credit-unions-and-community-banks
