Underwriting & credit
Alternative Data: Definition & Example
What Is Alternative Data?
Alternative data is information used to evaluate applicants that is not in a traditional credit report, such as bank account cash flow, rent and utility payments, and employment or education records.
What does alternative data mean?
Traditional credit reports track loans and credit cards. Alternative data fills gaps for people with thin or no credit files by looking at other financial behavior. The most common sources are bank transaction data (income, balances, overdrafts), rent payment history, and utility and telecom payments.
Regulators have encouraged responsible use of alternative data to expand access to credit, while warning that it must be accurate, consumer-permissioned where required, and used without unlawful discrimination.
Some alternative data flows through consumer reporting agencies and is subject to the Fair Credit Reporting Act. Other data is collected directly from the consumer with their permission, which can carry different obligations.
Alternative data example
A renter with no credit history applies for a small personal loan. With her permission, the lender reviews 12 months of her checking account data and a rent payment history reported by her property manager. Both show consistent income and on-time payments, and she is approved.
Related terms
- Cash-Flow UnderwritingCash-flow underwriting is evaluating an applicant using income, spending, and balance patterns from their bank account data, often alongside or instead of a traditional credit report.
- Thin Credit FileA thin credit file is a credit report with too few accounts or too little history to generate a reliable credit score. People with no credit record at all are called credit invisible.
- Open BankingOpen banking is the practice of letting consumers securely share their bank account data, such as balances and transactions, with third-party apps and services they choose, usually through APIs.
- Consumer-Permissioned DataConsumer-permissioned data is financial information a consumer actively authorizes a third party to access, such as bank transactions shared through an open banking connection.
- Credit ScoreA credit score is a three-digit number, usually from 300 to 850, that estimates how likely a person is to repay debt based on the information in their credit report.
