By Arjan Schutte and Rachel Schneider

As many as 70 million adults in the United States have no credit score or a limited credit history with the traditional credit bureaus. These consumers represent an important opportunity for lenders to access a new market. But without the development and application of new methods of assessing these individuals’ creditworthiness, this market expansion would also represent a significant new risk. In order to solve this problem, several companies have created alternative credit scoring products based on the analysis of non-traditional data, including rental and bill payment history, insurance payments, debit-card use and public records. In this paper, CFSI reports on test results provided by three such companies in an effort to identify what is the proof of these alternative credit scores’ predictive and economic value. The tests, including one which tests rental data to predict future rental performance, suggest that alternative credit scores offer the potential to reliably measure the credit risk represented by far more individuals than can be assessed with traditional data. In addition, many individuals without traditional credit scores represent prime or near-prime credit risk. The widespread use of nontraditional data for credit scoring could dramatically broaden the reach of mainstream financial services companies.