At a briefing on Capitol Hill, the Policy and Economic Research Council (PERC) released a report on the consumer credit impacts of including fully reported (timely and late payment data) non-financial payment data (so-called “alternative data”) in consumer credit reports. The study, A New Pathway to Financial Inclusion, suggests that despite economic changes, alternative data provides enormous lift to lenders when assessing credit risk.
The study compares results with data from2005/2006 and 2009/2010 credit reports to assess the consumer credit impact of including fully reported alternative data in credit reports. The data was selected to capture the period during which unemployment and late payments spiked.
The study’s key findings include:
- Massive material impacts for the financially excluded: Including in this group those who become scoreable when alternative data is added, assuming that not having a score is viewed as very high risk, then 64 percent experience a score tier rise and 1 percent experience a score tier fall.
- Score impacts are stable over time: Comparing the 2005 (pre-Great Recession) results with the 2009 (post-Great Recession), those whose scores improved with the inclusion of alternative payment data increased by 4 percent, those whose scores were unchanged increased by 10 percent and those whose scores lowered declined by 19 percent.
- Credit underserved primary beneficiaries of alternative data: The largest net beneficiaries in terms of improved credit access are lower income Americans, members of minority communities, and younger and elderly Americans. For example those earning less than $20k annually saw a 21 percent increase in acceptance rates, African-Americans saw a 14 percent increase, those age 18-25 saw a 15 percent increase and those above 66 years of age saw an 11 percent increase.
- Those with past serious delinquencies benefit from alternative data: Consumers with a public record including a bankruptcy and/ or very late payments (90+ days late) among the traditional accounts reported to CRAs, witnessed more score increases than decreases (55 percent versus 30 percent) when alternative data were included in their credit files.
About PERC: The Policy and Economic Research Council (PERC) is a non-profit, non-partisan organization devoted to research, public education and outreach on public policy matters. PERC’s goal is to educate and engage policy makers, consumers, the financial/economic community and the larger public, in the firm belief that a better informed public makes better decisions. Areas of expertise include information policy, economic development, credit access and the global information economy. The Council is funded by both for-profit and not-for-profit organizations that support the Institute’s general mission and agenda.
Source: PERC — For more information, please contact: Whytney Pickens: [email protected]