Credit ‘invisibles’ a critical part of reaching full credit inclusiveness

What if rent, cellphone, utility payment and short-term lending histories could help someone build their credit? The reality of our ever-globalizing, ever-innovating world is that more and more Americans are taking advantage of the new opportunities provided through the shared economy — and not only as consumers, but also as those benefiting from alternative income streams.

While our economy keeps innovating and changing, how we evaluate financial behaviors of this new generation is not adapting quick enough. This reality has created a large percentage of underserved American adults known as “credit invisibles” — that is, those with thin or “unscoreable” credit. Credit invisibles number more than 26 million individuals in the United States. 

{mosads}Credit invisibility can be an unfortunate reality that colors an individual’s financial stability based off their past behavior, without considering future promise, undermining the opportunity for many to pursue a path toward upward financial mobility. Across America, more than 60 million adults struggle with obtaining credit and maintaining a good score. Oftentimes, these adults find out about the challenge their credit score presents when it’s too late — as they are making an important financial decision. This means consumers are blocked from achieving goals like buying a car, owning their own home or opening a business. In today’s economy, the cloak of invisibility now extends to include not only minority consumers or those from low income neighborhoods, but also the shared economy workforce and a generation of millennials without traditional credit histories.

We have a responsibility to create an environment where everyone is empowered to make smart, informed financial decisions. At Experian, we have been looking at the problem “credit invisibles” face for the past few years, and how our business can step in to see how we can make data and financial an opportunity, not a liability, bringing more financial opportunities for consumers. We have invested significant resources in exploring and discovering new ways alternative data can be utilized so today’s generation of college graduates can be empowered to take out a loan realize their financial dreams – whether it be a loan for a car to get them to and from work or to start their own business.

In recent years, our Consumer Services team noticed how emerging technology was creating a new generation that thought differently about the way they worked and lived. Rather than joining a large corporation, many people make a living through platforms like Lyft, Uber, Airbnb, TaskRabbit and others. Increasingly, people string together multiple jobs to make income on their own timetable. While ingenious and liberating for many, this unconventional income source often makes it difficult for banks to gauge credit risk and worthiness. 

The team incorporated several new concepts into our 2017 planning to address how to use alternative data to promote financial inclusion and is working toward making it easier for consumers to apply for a loan by capturing on-time rental payments, utility bills and other non-traditional transaction information data by utilizing financial data-sharing ecosystems. These combined efforts help to capture information and establish sustainable processes that can be leveraged for credit invisible consumers, regardless of whether they sit at a desk all day or earn income in the shared economy. 

Creating new tools, better data sets and new efficiencies for credit invisibles is as much about societal good as it is for business rationale. Already, it is known that when alternative data like rent payments, cell phone payments, utility payments, and an individual’s short term lending history are trended appropriately, it can be an accurate predictor of an individual’s financial behavior, and can be an important step towards promoting greater financial inclusion for more Americans. Credit bureaus — and others in the financial services industry – shouldn’t cease to push the boundaries of resourcefulness and imagination to promote financial stability and create opportunity. Necessity is, after all, the mother that turns data into utility for millions of Americans.

Alex Lintner is president of Experian Consumer Information Services of Experian North America.