What types of alternative credit data do lenders use?
There are many types of financial data lenders can use to evaluate borrowers outside of the traditional credit report. These include:
Spending patterns: Account information pulled from consumer bank and credit card accounts that shows money going in and out. Lenders can use this data to evaluate income and spending and determine if an applicant is eligible for a loan.
Bill payments: Regular bill payments for everyday life such as rent, utilities, phone, and insurance can be used to show that a loan applicant has a history of paying their bills on time—and can thus be considered creditworthy.
Rental payments: Rental history showing on-time payments over an extended period is a great way for borrowers to demonstrate their ability to pay off a loan. Rental payment data can be accessed either through property management companies or bank account transactions.
Alternative loan types: Some alternative loan types, such as buy now pay later (BNPL) loans and paycheck advances can count towards creditworthiness—though they’re not always accounted for in traditional credit scoring. Consistent repayment on these loans is another data point lenders can use to assess applicants.
Bank account assets: Historic, current, and pending bank account balances can help underwriters gain a more complete picture of a borrower’s finances. Lenders can ask borrowers to provide bank statements or link their bank accounts via an API-based data solutions provider. Plaid, for example, provides access to all the account information the lender needs in seconds.
Income data:Documents and bank inflows that show proof of income, such as pay stubs, 1099s, and W2s, are often used by lenders to determine a borrower’s creditworthiness. Just like bank statements, lenders can request loan applicants to manually upload these documents or use digital solutions like Plaid to directly connect with payroll providers and banks to retrieve this information in seconds.
