Federal banking regulators in the US have given their support to the use of the alternative data other than traditional credit scores in determining creditworthiness.
In a joint statement, the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration, say the use of alternative data will open up opportunities for credit from consumers previously determined as high-risk.
The move could open up the market to a wave of fintech firms relying on alternative data sources to provide credit to consumers who would traditionally be turned away by financial firms applying strict credit scoring tools.
As many as 50 million US consumers are estimated to lack the payments history to generate reliable credit scores.
Alternative data includes information not typically found in consumers’ credit reports, such as cash flow data derived from consumers’ bank account records.