Alternative credit, also known as nontraditional credit, is exactly what it sounds like: a different approach to credit. It's a powerful tool for business owners and operators, and it allows you to offer your services to underserved consumers without taking on additional risk.
Traditional credit reporting is what most people think of when they hear about credit scores. The most common credit score model is FICO, which ranges from 300 to 850. These credit scores are usually calculated by the "Big 3" credit bureaus: Experian, TransUnion and Equifax. Your score is based on a few pieces of information, all involving your credit and financial history.
The trouble with traditional credit.
The big problem when it comes to traditional credit scores, including FICO, is that they aren't based on enough information. These credit reports only take into account four types of credit history. People who don’t have that history aren’t well represented.
Why is this a problem?
In short, traditional credit reporting doesn't tell the whole story. Instead, it takes a limited amount of information and presents a score which is supposed to be definitive and comprehensive. The result is a conclusion that can be misleading. It doesn't fully represent an individual's credit history, demonstrated financial responsibility or ability to pay back loans.
There are many cases where people, through no faults of their own, are saddled with low credit scores. For example:
The credit histories of immigrants don’t follow them from their countries of origin. So they aren’t taken into account here in the U.S., even if a person has built up excellent credit over the years.
Millennials and other young consumers can be incredibly responsible financially, yet have low credit ratings just because they haven't had time to build up lengthy credit histories.
Businesses Get Big Benefits When They Accept Connect Alternative Credit Reports.
Making the Invisible, Visible.
About 11 percent of U.S. adults are credit invisible. In addition, 19 million have “unscorable" credit records, meaning there's not enough information available to assess their creditworthiness. Many of these people may be financially disciplined, but traditional credit bureaus provide little to no insight because of the limited data they collect.
Suppose someone doesn't own a credit card, but pays their rent, utilities and phone bills on time and in full every month. If you knew this, you'd be more likely to see that customer as fiscally responsible. Alternative credit reports make this possible.
Getting the Customers Others Miss
Though alternative credit scores are gaining popularity, many companies still don’t use them. This is potential edge over your competitors. While they use traditional credit only, and turn away thousands of unbanked and underbanked prospects, you can use alternative credit to get a more accurate picture of those people and do business with the ones that meet your risk threshold.
Better Customer Identification and Fraud Protection
In addition to a reliable alternative credit score, a Connect alternative credit report provides helpful information for confirming someone’s identity and protecting your business from fraud. That makes Connect helpful to everyone from lenders to landlords.
Meet Regulatory Requirements
U.S. authorities are paying close attention to how lenders and other businesses accept people based on their credit. They're catching onto the fact that a low traditional credit score doesn't necessarily indicate that a person isn't capable of handling a loan.
The Equal Credit Opportunity Act (ECOA) ensures organizations are conducting fair, thorough appraisals of people's financial conduct. The ECOA states that creditors must - at an applicant request - consider credit information that isn't reported through a credit bureau. While the law requires businesses to accept alternative credit reports, you can get out ahead by proactively using them in your loan consideration.
We’ve made using Connect easy.
The Connect Credit Builder platform allows lenders to access customer alternative credit data.
Once your account is created you can access Connect alternative credit data scoring in one of two ways.
Just like a traditional credit score - but more informative.
Using a scale of 100 to 850, a Connect alternative credit score incorporates information traditional consumer reporting agencies don’t consider in their scores. Connect alternative credit measures a consumer’s regular bill payment habits generating a score on a similar scale to traditional credit, and with the same meaning. For example, in terms of likelihood to repay a debt, a 600 alternative credit score has the same meaning as a 600 traditional credit score.
- car insurance
- cell phone
- auto loan
When it comes to better lending, almost any business can use Connect.
Connect Alternative Credit Score factors in an individual’s monthly bill paying habits to establish their credit worthiness. This more accurate picture of someone’s financial responsibility is helpful to almost any business, but some industries in particular find Connect a great partner.
Businesses that can use Connect alternative credit.
Are there industries than can’t use Connect?
Yes, there are. By law, businesses participating in the healthcare and medical industry are prohibited from using alternative credit data. This is largely due to the intense regulations those businesses must adhere to. In addition, home-based businesses and employment-screening companies do not use alternative credit scores for similar reasons.
Ready to build your business with Connect?
Join the businesses that are already growing their customer base with Connect.
A secure, reliable service.
Connect sits on MicroBilt’s rock-solid infrastructure. With 99.99% uptime and bank-grade data encryption technology Connect protects both consumers and the companies doing business with them.
PCI DSS 3.0 Compliance
Establishes tight controls for storing, transmitting and processing cardholder data.
256-bit Advanced Encryption Standard
Makes sure to encrypt all of your credentials using 256-bit AES standards.
Let’s talk about how you can use Connect
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